Business Studies – 5.2.1 The importance of cash and cash flow forecasts | e-Consult
5.2.1 The importance of cash and cash flow forecasts (1 questions)
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A business facing a cash flow problem might strategically combine an overdraft with delaying supplier payments. This approach aims to provide immediate liquidity while also conserving cash in the short term. Here's a breakdown of the benefits and drawbacks:
| Method Combination | Benefits | Drawbacks |
| Overdraft + Delaying Supplier Payments | Provides immediate cash flow through the overdraft while preserving cash by delaying supplier payments. Allows the business to meet immediate obligations and continue trading. | High interest costs on the overdraft can offset the benefits of delayed supplier payments. Potential damage to supplier relationships if delays are excessive. Reliance on borrowing can become a problem. |
Evaluation: This combination can be effective in the short term, but it's crucial to carefully manage the overdraft to avoid excessive borrowing costs. Maintaining good relationships with suppliers is also essential to avoid damaging the business's reputation. A long-term solution should still be sought to address the underlying cause of the cash flow problem.