30 Explain one way a business could solve a potential cash flow crisis caused by rapid growth.

[Sir Afzal Shad]

30 Explain one way a business could solve a potential cash flow crisis caused by rapid growth.[3]
Hint: Arrange an overdraft > Get a short-term loan facility from the bank in advance > This provides the cash needed to pay bills while waiting for customers to pay.

[Shaliza khawaja]

A cash flow crisis occurs when a business does not have enough cash to pay its day-to-day expenses. For example, a fast-growing business may face higher demand and need to spend more on stock before receiving customer payments. One way to solve this is by renegotiating credit terms with suppliers, such as offering to double the order if they extend the payment period or give a 5% trade discount. This helps the business delay cash outflows, keep enough money for daily operations, and avoid taking short-term loans.

Examiner Comments:
- Require proper development of analysis
- Renegotiate terms with suppliers like "I will double the order if you offer 5% trade discounts or if you extend the recovery time" etc.

[shamaim shakeel]

(KN)
A cash flow crisis happens when a business grows too fast and runs out of money to pay its daily costs.

(APP)
For example, a new clothing store might spend too much on stock and shop rent before customers pay them.

(AN)
The business can fix this by asking suppliers for more time to pay bills.
This means cash will stay longer in the business, helping to cover daily costs.
It also avoids borrowing money, which keeps the business safer from extra debt.

[Muaz Aamir]

KN A cash flow crisis is when a business runs out of cash to pay its bills, even though it’s earning money.

AP For example, a business that grows too fast might spend too much on new stock or staff before the money from sales comes in.

AN The business could fix this by delaying some payments or asking customers to pay faster, which would bring in more cash quickly and help it keep running without borrowing too much.

[Aayan Zaidi]

KN: A business can improve cash flow problems by improving how money co.es in and goes out.
APP: E.g it could ask customers to pay earlier or delayed payments to suppliers.
AN: This helps to keep enough cash available to cover daily costs during rapid growth.