Egidio De-Souza
Group 3
Unit 5
D1
In this task, I will provide some solutions with justification to the cash flow forecast of ABC business as identified above.
1. Credit sales
Solutions for ABC could be that if they manage their credit sales accordingly they can ensure that debtors can pay quickly. ABC have to set up an analysis of the credit and cash sales, this may lead to the company to limit their credit sales. Furthermore ABC can try debt factoring and this is a service which allows them to sell their debtors to a factoring company normally a bank. ABC will receive around 80% of the value in cash straight away, and the rest of the cash is paid after all the debt has been collected excluding a fee to the factoring company.
ABC will benefit from this solution because by factoring it will improve their cash flow immediately but lesson money will be received. Moreover it is a good strategy which benefits ABC because their credit sales are 50% of their cash income, and also their cash sales are 50% as well. As a result they can not depend on debtors, so their other option would be to use factoring in order to get their money and improve their cash flow promptly.
2. Stockpiling
The solution for ABC would be to organise their stock resourcefully so that they minimise waste and stock levels in order to reserve more coats. ABC could use the just-in-time method before their stocks runs out they will get minimal stock, but ABC have to ensure they have reliable supplier, however they charge more money but in return for the flexibility of their service provided.
ABC benefit from this in the future because they want the business to become established and they will need more stock of coats. Furthermore by doing this technique it will allow ABC to save stock for later on in the future and buy as much stock levels of coats they will need in order to manage it properly.
3. Seasonal factor
The solution for ABC can expand their product range and sell different types of clothing throughout the year, so their customer are satisfied at the type of clothing which is being sold for the right season. For an example in the winter period ABC need to supply different styles of coats because it is normally cold, e.g. Leather coats. But in summer they should stock less on coats and think of a new type of clothing to sell, e.g. T-shirts. Moreover ABC anticipates the seasonal factors because it enables them to agree overdrafts with their banks, also to be prepared for the periods when their income is going to be low.
My solution will benefit ABC because if this method is done efficiently it can help them anticipate when there income is going to be low in a season like summer. For an example the coats are not going to be popular. In addition ABC can sell clothing which is more popular in the summer, e.g. T-shirts. This could save the coats for winter, so this could save them from buying 400 coats each month after May. However this solution could impact ABC because they will need money for the t-shirts and ABC’s business has not established properly yet. Therefore they would have to use the money from the coats already sold in order to pay for the t-shirts, which are not guaranteed that