Question

how a potential shortage of funds at the subsidiary could be overcome.

Answer 1

Potential shortage of funds at a subsidiary can be overcome by gathering funds from various available sources of finance. The main source include the supply of funds from a parent company, bank finance in case of large shortage of funds, overdraft finance in case of shortage of funds for a shorter period ususlly less than a year, working capital loans for meeting short term working capital obligations. The other source may include the disposal of unused assets. In case if the subsdiary has any patents lying with it then the same can be exploited to fund the shortage. Reconcilling accounts payable and collecting accounts receivable in a shorter span of time may also avoid the shortage of funds temporarily. If the subsdiary is a manufacturing firm then the wastage can also be reduced to increase the flow of funds.