Distribution of payments
- Businesses need to make sure their cash outflows are in time with their inflows.
- Planning out payments and ensuring that you will have enough cash to pay creditors is essential.
- This will ensure liquidity.
Discounts for Early Payments
- Some businesses offer a cash discount if customers pay before their payment is due as it improves cash flow.
- Factoring is the selling of accounts receivables for a discounted price to a finance or specialist factoring company.
- The business saves on the costs involved in following up on unpaid accounts and debt collection.
- This is an important source of finance because the business is receiving immediate funds to use and therefore helping their cash flow.
Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.