3.7.4BM30 flashcards

Strategies to improve cash flow

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Card 1 of 303.7.4

3.7.4

Question

Three ways to reduce cash outflows?

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All 30 Flashcards — Strategies to improve cash flow

Card 1concept

Question

Three ways to reduce cash outflows?

Answer

Longer supplier terms, reduce stock (JIT), cut costs, lease not buy, delay non-essential spending.

💡 Hint

Delay, reduce, lease

Card 2concept

Question

Trade-off with factoring?

Answer

Immediate cash but factor keeps a percentage — receive less than full invoice value.

💡 Hint

Fast cash at a cost

Card 3concept

Question

Three ways to increase cash inflows?

Answer

Reduce credit terms, offer early payment discounts, chase debts, factoring, increase sales.

💡 Hint

Faster + more cash in

Card 4concept

Question

Customers paying late — best strategy?

Answer

Tighten credit control (shorter terms) or use factoring for immediate cash.

💡 Hint

Tighten credit + factoring

Card 5concept

Question

Three approaches to improving cash flow?

Answer

1) Increase inflows, 2) Reduce outflows, 3) Obtain additional finance.

💡 Hint

In more, out less, get more

Card 6concept

Question

Three ways to obtain additional finance?

Answer

Overdraft, short-term loan, sell assets, owner's capital injection, sale and leaseback.

💡 Hint

Borrow, sell, inject

Card 7concept

Question

How to earn big marks on strategy questions?

Answer

2-3 strategies, explain HOW each works, link to cause, evaluate pros/cons.

💡 Hint

2-3 + how + pros/cons

Card 8concept

Question

How does leasing help cash flow vs buying?

Answer

Spreads cost over time in smaller payments — preserves cash instead of one big outflow.

💡 Hint

Small payments vs lump sum

Card 9definition

Question

What is factoring?

Answer

Selling unpaid invoices to a factor for immediate but reduced cash — instant money, lose a percentage.

💡 Hint

Sell invoices for instant cash

Card 10concept

Question

Trade-off with selling assets?

Answer

Raises cash but reduces capacity to generate future revenue.

💡 Hint

Cash now, less capacity

Card 11definition

Question

What is sale and leaseback?

Answer

Sell an asset (e.g. warehouse) for cash, then lease it back to keep using it. Cash up, rent ongoing.

💡 Hint

Sell it, rent it back

Card 12concept

Question

Overtrading — best strategy?

Answer

Slow down growth, arrange longer-term finance to match expansion pace.

💡 Hint

Slow growth + long-term funding

Card 13concept

Question

Why is delaying supplier payments risky?

Answer

Damages relationships, loses early payment discounts — saves now, costs more later.

💡 Hint

Relationships + discounts lost

Card 14concept

Question

How do early payment discounts work?

Answer

Offer e.g. 2% off if paid within 7 days instead of 30 — encourages faster customer payment.

💡 Hint

Discount for quick payment

Card 15concept

Question

Why is cutting marketing risky long-term?

Answer

Saves cash now but may lose customers — lower future inflows.

💡 Hint

Short gain, long pain

Card 16concept

Question

When is an overdraft most useful?

Answer

Short-term temporary cash gaps — flexible but expensive due to high interest.

💡 Hint

Short-term, flexible, costly

Card 17concept

Question

High stock levels — best strategy?

Answer

Clearance sale + switch to JIT ordering to reduce tied-up cash.

💡 Hint

Clear stock + JIT

Card 18concept

Question

Speed up inflows: tighten credit, discounts, chase debts, ___

Answer

Factoring — sell invoices for immediate cash.

💡 Hint

Factoring

Card 19concept

Question

Slow outflows: negotiate terms, cut costs, ___

Answer

Lease instead of buy — spreads costs over time.

💡 Hint

Leasing

Card 20concept

Question

Getting money in faster ≠ earning more. What does it mean?

Answer

Getting what you're already owed sooner — timing, not total revenue.

💡 Hint

Same money, just faster

Card 21concept

Question

What is JIT stock management?

Answer

Order less stock, more frequently — reduces cash tied up while meeting demand.

💡 Hint

Less stock, more often

Card 22concept

Question

What makes the BEST exam answer on strategies?

Answer

Evaluate BOTH the short-term cash benefit AND potential long-term consequences.

💡 Hint

Short-term + long-term

Card 23example

Question

Business sells warehouse for $500k, pays $3k/month rent. Strategy?

Answer

Sale and leaseback — large cash injection but ongoing monthly expense.

💡 Hint

Sale and leaseback

Card 24concept

Question

Seasonal sales dip — best strategy?

Answer

Overdraft to cover gap, or build reserves during peak months.

💡 Hint

Overdraft or save in peaks

Card 25concept

Question

What to always consider when evaluating strategies?

Answer

Trade-offs — short-term gains may have long-term costs.

💡 Hint

Every strategy has a trade-off

Card 26concept

Question

Why LINK strategy to the specific problem?

Answer

Generic solutions score lower — showing WHY it fixes the specific cause = deeper understanding.

💡 Hint

Match to cause

Card 27concept

Question

Reducing credit terms from 30 to 14 days helps how?

Answer

Customers pay sooner — cash arrives earlier, less tied up in receivables.

💡 Hint

Faster collection

Card 28concept

Question

Negotiating 60 vs 30-day supplier terms does what?

Answer

Delays outflows — keep cash longer before paying, improving short-term liquidity.

💡 Hint

Pay later = keep cash

Card 29concept

Question

Trade-off with overdrafts?

Answer

Flexible for short-term but high interest — expensive if used long-term.

💡 Hint

Flexible but costly

Card 30concept

Question

How does owner's capital injection help?

Answer

Owner puts personal money in — increases cash without debt or selling assets.

💡 Hint

Personal money, no debt

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Cash flow

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