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3.7 CASH FLOW (WORKING CAPITAL (Most business would obtain finance through…

- - - - Not buying equipment, vehicles and so on
      - Business becomes less efficient with outdated machines, expansion becomes difficult
    - - Leasing company owns the assets
      - Asset is not owned by business, charge will include an interest and add to overhead
    - - Extend the time of payments
      - Will get no discounts, suppliers may refuse to supply
    - - Will not reduce production capacity, cash payments reduce
      - Future demand may be reduced
  - - - A fixed amount can be borrowed
      - Interest cost, loan must be repaid by due date
    - - Cash receipts may be obtained
      - Sell quickly may be result in lower price, assets might be needed in future
    - - Flexible loan can be arranged
      - Interest rate high, can be withdrawn by bank
    - - Assets can be sold and leased back later
      - Leasing cost add to overhead, assets could have been used as collateral for future loans
    - - Sale inventories at lower price
      - Will improve cash flow but worsen profit
    - - Debt factoring company buy the customers bill and offer immediate cash
      - Only 90%-95% of the debt will be paid
    - - Reduce credit term from 2 months to 1 month
      - Customer may purchase from other firms