Business – 5.3 Forecasting and managing cash flows – Cash flow forecasts | e-Consult
5.3 Forecasting and managing cash flows – Cash flow forecasts (1 questions)
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Three common methods for improving cash flow are:
Accelerating receivables (e.g., offering early‑payment discounts).
- Advantage: Cash is received sooner, reducing the cash conversion cycle.
- Disadvantage: The discount reduces overall revenue and may erode profit margins.
Negotiating extended payment terms with suppliers.
- Advantage: Outflows are delayed, freeing up cash for other uses.
- Disadvantage: Suppliers may charge higher prices or reduce credit limits.
Reducing inventory levels through just‑in‑time (JIT) purchasing.
- Advantage: Less cash is tied up in stock, lowering holding costs.
- Disadvantage: Risk of stock‑outs, which can lead to lost sales and damaged customer relationships.