Sources of cash flow problems

When a business runs short of cash it is normally due to one single reason. Liquidity crises often result from a number of errors in the control of working capital.

Overtrading. Young and rapidly growing businesses are particularly prone to OVERTRADING. Overtrading occurs when a business is attempting to fund a large volume of production with inadequate working capital. Established companies trying to expand can also face this problem. This way arguably one of the factors leading to the demise of Sock Shop in 1990, after expansion plans in the USA failed, and the problems of Next, the clothes retailer in the 1980s.

Investing too much in fixed assets. In the initial stages of a business, funds are limited. Spending large amounts quickly on equipment, vehicles and other capital items drains resources. It may be better to lease some of these fixed assets, leaving sufficient cash funds.

Stockpiling. Holding stocks of raw materials and finished goods is expensive. Money tied up in stocks is unproductive. Stocks may become obsolete. In addition, stocks of raw materials in particular cannot be easily changed into cash without making a loss. Stock control is an important feature of cash management. Firms should not buy in bulk if discounts are not enough to compensate for the extra cost of holding stocks.

Allowing too much credit. A great deal of business is done on credit. One of the dangers is that firms allow their customers too long for payment. This means that the firm is waiting for money and may actually be forced to borrow during this period. Failure to control debtors may also lead to bad debts. Taking early action is the key to the effective control of debtors. At the same time businesses must maintain good relations. Small firms are particularly vulnerable if they are owed money by much larger companies. Powerful businesses are often accused of endangering smaller companies by delaying payments to them.

Taking too much credit. Taking more credit might appear to help a firm’s cash position since payments are delayed. However there are some drawbacks. Taking too much credit may result in higher prices, lost discounts, difficulties in obtaining future supplies and a bad name in the trade. At worst, credit must be overdrawn.

Overborrowing. Businesses may borrow to finance growth. As more loans are taken out interest costs rise. Overborrowing not only threatens a firm’s cash position, but also the overall control of the business. It is important to fund growth in a balanced way, by raising some capital from share issues. A well publicized example was the overborrowing from the employees’ pension fund of Maxwell Communications.

Задание 24. Переведите деловое письмо с русского языка на английский язык:

LETTER 8

Уважаемые господа!

Мы получили Ваше письмо от 20 марта и рады были узнать, что Вы желаете установить с нами деловые отношения.

Согласно Вашей просьбе высылаем образцы наших товаров. Мы надеемся, что образцы Вам понравятся, и Вы разместите заказ в нашей фирме.

Цены указаны в прейскуранте, который прилагается к письму. Условия платежа следующие: покупатель открывает безотзывный аккредитив в пользу продавца в … банке в Москве на полную стоимость товара.

Аккредитив должен быть открыт в течение 5 дней от даты уведомления о готовности товаров к отгрузке. Платеж производится против отгрузочных документов.

С уважением….

Задание 25. Прочитайте и переведите текст по специальности со словарем:

By sending documents through the banking system in a documentary bills collection, both an exporter and an overseas buyer have some degree of security in completing the commercial contract. But a more secure method of carrying out the transaction is by a documentary letter of credit. This documentary letter of credit when transmitted through a bank, usually in the exporter’s country, becomes the means by which the exporter obtains payment.

The necessary documents, correctly completed, are presented to a bank by the expiry date of credit. If the terms of the credit are met an exporter can receive payment from a UK bank. The buyer is in effect providing the exporter with immediate payment in return for a guaranteed assurance from a reputable bank that the export documents required to deliver the goods have been completed to the bank’s satisfaction.

Documentary credits may be revocable or irrevocable. A revocable letter of credit is rather rare nowadays because it means that the terms of the credit can be cancelled or amended by an overseas buyer at any time without prior notice to the exporter. Most letters of credit are irrevocable, which means that once a buyer’s conditions in the letter have been agreed by an exporter, they constitute a definite undertaking by the buyer’s bank and cannot be revoked without the exporter’s agreement.

UK banks advise letters of credit, i.e. on presentation of documents required in a letter of credit, they send them for collection and payment by the issuing bank of an overseas buyer. The letter of credit in this situation is only as good as the strength of the overseas bank involved. An exporter’s advising bank undertakes no responsibility itself to pay the exporter.

Задание 26. Прочитайте специальный текст и перескажите его содержание на английском языке: