Why would a small company experiencing cash flow problems want to understand its
ID: 2789273 • Letter: W
Question
Why would a small company experiencing cash flow problems want to understand its operating cycle better?Why might it be a good for a company that is experiencing cash flow problems to review its credit policy? Why would a small company experiencing cash flow problems want to understand its operating cycle better?
Why might it be a good for a company that is experiencing cash flow problems to review its credit policy? Why would a small company experiencing cash flow problems want to understand its operating cycle better?
Why might it be a good for a company that is experiencing cash flow problems to review its credit policy?
Explanation / Answer
A small company which faces the cash flow problems would like to understand its operating cycle better in order to understand the time required to realise cash. It can make decisions based on the understanding of its operating cycle. Decisions can be taken only when it has the knowledge of their sales realisations and cash disbursements.
Hence when a small company faces the cash flow problems, it would like to understand its operating cycle better.
A company which experiences cash flow problems can make the changes in order to overcome the problems only when it knows the credit policy i.e., credit term allowed to debtors. Hence we can say that it is good for a company that is experiencing cash flow problems to review its credit policy.
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