Question

Case 21: The Elusive Cash Balance- Applications in FInancial Management.

How might the firm avoid cash shortages in the future? Explain.

Answer 1

There are multiple ways in which a firm can avoid cash shortage in the future. Bad debts management is one such way of avoiding cash shortage. Business should have a proper credit control and monitoring system in place to collect the money owed by customers. Credit terms negotiated with the customers should be reviewed to avoid negative cash flow. Factoring and early settlement discounts are two ways by which cash flow can be improved. It may also be beneficial to re negotiate the credit terms with suppliers. Higher the credit received from suppliers greater will be the delay in making payments and the cash can be retained within the business for a longer time.