Relier Pairs Reasons for poor cashflowVersion en ligne There are a number of reasons why companies may end up facing cashflow problems. In this activity you will match up the reasons with their definitions . par Diego Silva 1 Lengthy credit period and poor credit collection 2 Low sales 3 Poor pricing strategy 4 Overtrading 5 High expenses 6 Seasonal demand 7 Overstocking If this occurs then the business cash outflow is much higher than its inflows, resulting in a negative net cash flow figure. It could simply be that the sales are low and the company is simply not raking in enough cash. This could be due to being a newly established business, or poor promotion. In a bid to penetrate the market or drive sales, the company's price may be too low, resulting in inadequate cash inflows. The company could hold too much stock and tie up most of its money in it. This again results in inadequate cash in the business. This occurs when the business tries to expand too rapidly and engages in more business than can be supported by the funds available in the business. This means that the business will constantly have a cash shortfall, especially if its sales are low. A company may want to attract customers by offering generous credit terms. However, this may be to the detriment of its net cash flow position, as in the example above. The company must also be vigilant in its credit collection efforts – a low creditor days ratio would be helpful. Some products, such as ice cream, thrive in the summer, and sales are therefore likely to plummet in winter, resulting in low cash inflows.
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