THE IMPORTANCE OF CASH FLOW IN RELATION TO LATE PAYMENT - 4675 Words

THE IMPORTANCE OF CASH FLOW IN RELATION TO LATE PAYMENT (Other (Not Listed) Sample) Content: THE IMPORTANCE OF CASH FLOW IN RELATION TO LATE PAYMENT By Student’s Name Code + Course Name Professor’s Name University Name City, State Date Executive Summary In every organisation, cash flow is extremely essential because it keeps the business operations alive. It is the lifeblood of the organisation. Many Small and Medium Enterprises require liquid cash for their operations and emergencies. Without the cash, it is virtually impossible for these businesses to operate efficiently. Several reasons make it necessary for the small businesses to have more liquid cash and money that is readily available whenever needed as compared to the large businesses. One of the reasons is that they are yet to build a reputation which is the case for most of them making it difficult for them to access credit. In an attempt to attract customers, these businesses will often advance credit to their customers. Studies show that very few businesses follow up r egularly on the credits they have advanced to customers. This results in the SMEs dealing with late payments often which cause them to strain as they do not have enough money to support their operations. Many SMEs in the UK face the problem of late payments today. This makes it necessary for the management of these films to learn the significance of cash flows in rectifying this issue. This paper discusses and reports on the significance of cash flows in relation to late payments for Small and Medium Enterprises. Table of Contents  TOC \o "1-3" \h \z \u  HYPERLINK \l "_Toc380095646"
Executive Summary  PAGEREF _Toc380095646 \h
2  HYPERLINK \l "_Toc380095647"
Table of Contents  PAGEREF _Toc380095647 \h
3  HYPERLINK \l "_Toc380095648"
Declaration  PAGEREF _Toc380095648 \h
5  HYPERLINK \l "_Toc380095649"
Introduction  PAGEREF _Toc380095649 \h
6  HYPERLINK \l "_Toc380095650"
Problem Statement  PAGEREF _Toc380095650 \h
7  HYPERLINK \l "_Toc380095651"
Literature aspects of Cash flows  PAGEREF _Toc380095651 \h
7  HYPERLINK \l "_Toc380095652"
Main article  PAGEREF _Toc380095652 \h
7  HYPERLINK \l "_Toc380095653"
Focus of th e article  PAGEREF _Toc380095653 \h
8  HYPERLINK \l "_Toc380095654"
Strategic Questions  PAGEREF _Toc380095654 \h
8  HYPERLINK \l "_Toc380095655"
Main issues of Investigation  PAGEREF _Toc380095655 \h
9  HYPERLINK \l "_Toc380095656"
Strategic direction  PAGEREF _Toc380095656 \h
9  HYPERLINK \l "_Toc380095657"
Synthesis of Information  PAGEREF _Toc380095657 \h
9  HYPERLINK \l "_Toc380095658"
Cash flow Concept  PAGEREF _Toc380095658 \h
9  HYPERLINK \l "_Toc380095659"
Cash flow In brief  PAGEREF _Toc380095659 \h
9  HYPERLINK \l "_Toc380095660"
Cash management  PAGEREF _Toc380095660 \h
11  HYPERLINK \l "_Toc380095661"
Working capital  PAGEREF _Toc380095661 \h
12  HYPERLINK \l "_Toc380095662"
Cash flow cycle  PAGEREF _Toc380095662 \h
13  HYPERLINK \l "_Toc380095663"
Inflows  PAGEREF _Toc380095663 \h
14  HYPERLINK \l "_Toc380095664"
Outflows  PAGEREF _Toc380095664 \h
14  HYPERLINK \l "_Toc3800956 65"
Equity financing  PAGEREF _Toc380095665 \h
14  HYPERLINK \l "_Toc380095666"
Debt financing  PAGEREF _Toc380095666 \h
15  HYPERLINK \l "_Toc380095667"
Bank loans  PAGEREF _Toc380095667 \h
15  HYPERLINK \l "_Toc380095668"
The cost of different financing of working capital  PAGEREF _Toc380095668 \h
16  HYPERLINK \l "_Toc380095669"
SMEs Late Payments  PAGEREF _Toc380095669 \h
17  HYPERLINK \l "_Toc380095670"
Significance of cash flow in late payment for a business  PAGEREF _Toc380095670 \h
18  HYPERLINK \l "_Toc380095671"
Critique of the Sources of Information  PAGEREF _Toc380095671 \h
21  HYPERLINK \l "_Toc380095672"
Conclusion  PAGEREF _Toc380095672 \h
21  HYPERLINK \l "_Toc380095673"
References  PAGEREF _Toc380095673 \h
23  Declaration I _________________________________, declare that this report contains only work completed me except for information obtained in a legitimate way from literature, company or university sources. I have duly referenced and acknowledged all information from these other sources in accordance with the University Policy on Plagiarism. The Importance of Cash Flow In Relation To Late Payment Introduction Cash flow is the main indicator of how the business is doing with respect to their financial performance. Many businesses suffer from the challenge of late payments and this cripples their operations. One of the major methods is with regard to the cash flow concept. This report uses the scenario of Small and Medium Enterprises, especially partnerships and sole proprietorship businesses, most of which do not keep their financial records because it is not mandatory for them. The report makes use of information from various academic journals and the internet to synthesise the information on the significance of cash flows in relation to late payments and later analyses the information and sources. The small and medium businesses (SMEs) make it their concern s ince it is very pressing in terms of their maintenance. This does not mean that large organisations do not value cash flows. They do, just that the SMEs rely on the cash flow statement to know the position of the company as to where it is going or whether they are at a risk of liquidity. In the buy-out of private equity, it is important to put into consideration cash flow modelling as well as cash. In the other instance, cash management is very useful when the accessibility of liquidity is not possible. In simple terms, the company is concerned about the cash coming in and out of the company but not the profit and loss makes the cash flow as most people think. This report seeks to evaluate and analyse the significance of cash flow statements in small and medium enterprises in relation to late payments using various academic literature sources. Problem Statement Many small and medium enterprises are affected by the challenge of late payments, especially with regards to payments that payable by large organisations. The proprietors of SMEs fear losing these clients whose reputation is enough to attract customers to their business. This causes issues in accounting for the money paid and debts that are still pending at the end of the financial year. Failing to account for the cash flows relating to late payments is likely to give rise to theft through the misuse of money from late payments and later, the accountants put it down in the books of account as a bad debt. This increases the chances of businesses losing a high amount of money annually through such cases. Cash flow statements are essential tools in cash management and tracking the funds the business earns. Learning the significance of cash flow statements in relation to late payments helps managers seal the loopholes that cause businesses to lose a lot of money through these payments (Paul & Boden, 2011). Literature aspects of Cash flows Main article This report relies mainly on the article â€Å"Credit Management: How to Improve Cash flow and make your business more robust† that Cree and Hanson (2009) and others at the Director Publications limited in UK authored for Atradius company directors. The main theme of the article is the significance of cash flow in Small and Medium Enterprises. This article argues the case for the significance of steady cash flow and the necessity of proper credit management. Other business scholars also state that cash flows are an essential aspect in Small and Medium enterprises as these organisations require liquid cash for operations. The main reason behind this is that they are yet to form strong close ties with creditors and many financiers are yet to determine the credit worthiness of these businesses. Focus of the article This article focuses on the Small and Medium enterprises in UK and their credit management policies. The authors of the article start their analyses and evaluation with two facts that are shocking in the business world. The first is the worrying statistics that shows that more than 40% of SMEs have their assets held up in late payments. The second is that many of these SMEs fail to follow up on the debt and end up writing off a high portion of late payments as bad debts. Not all these late payments end up as bad debts though. At times, because of the nature of these organisations, they fail to pay their employees enough and some of the finance officers in these organisations fall into the trap of temptations and end up pocketing the money and later record it as bad debts. This focuses on how well managers can use the cash flow statement and other financial statements that help track the business funds to ensure the business does not run out of cash. Some business authors also support this cash flow concept in SMEs, whereas others criticize it. This report intends to use the information from other literature sources to discuss the concept of the significance of cash flows in SMEs and later critique the information (Cree, et al., 2009). Strategic Questions The report intends to tackle the following strategic questions. What does the concept of Cash Flow in Business entail? In addition, how should an organisation ensure adequate cash flow at all times? What are late payments and how should the management handle these issues in SMEs? How can an SME use the concept of cash flows to prevent late payments and the consequences of late payments? Main issues of Investigation This report investigates the cash flow statement using various journal articles and seeks to support the idea of the main article â€Å"Credit Management: How to Improve Cash flow and make your business robust.† The report also discusses the various ways an organisation can solve the issue of late payments. This issue has crippled many SMEs and affected their credit worthine...