Effective inventory control is important for cash flow because holding too much inventory ties up cash that could be used elsewhere in the business. Factors like late planning, overstocking discounted products, limited access to inventory data, and failing to adjust to trends can lead to poor inventory control and cash flow problems. Some causes of cash flow problems include seasonal fluctuations, late or non-payment from customers, high overheads, and bad debts. Solutions to improve cash flow involve auditing finances, freeing up assets, prioritizing credit control, negotiating supplier terms, and creating cash flow forecasts.

1. CASH FLOW PROBLEMS

2. INTRODUCTION
• Effective inventory control can boost your cashflow, in the same way
that bad stock management will lead to additional costs and even
cause cashflow problems.
• Holding inventory is unavoidable. However, holding too much
inventory stock ties up cash that could be invested in other areas of the
business
• An increase in inventory stock will appear as a negative amount in the
cashflow statement, indicating a cash outlay, or that a business has
purchased more goods than it has sold.
• If, on the other hand, inventory stock has decreased, the reduction in
inventory stock would be shown as a positive amount on the cashflow
statement.

3. CRITCAL DECISION OF OPERATION MANAGEMENT
• Goods and services
• Quality Management:
• Process and Capacity Design
• Location
• Layout Design and Strategy
• Human Resources and Job Design
• Supply Chain Management
• Inventory
• Scheduling
• Maintenance

4. FACTORS OF POOR INVENTORY CONTROL
Late Planning:
Inventory slips out of control when old products are not moving fast enough, or when seasonal
fluctuations in demand fail to meet inventory predictions
Overstocking Discounted Products:
Small businesses usually enjoy making bulk purchases or taking advantage of any special offers
suppliers have available. These offers, however, can be misleading. If these items won’t move fast
enough, the cost of carrying them may actually exceed any profits.

5. Limited Access to Inventory Control
You may think that keeping a tight rein on your inventory improves control, but that is not always the
case. Your employees in the store can benefit from having quick access to the inventory. They can tell
customers when to expect products that are not available, jot down stock notes, optimize order
purchases, and more
Neglected Trends
Customer trends are today easily influenced by social media and the Internet. In industries such as
technology, beauty & health, or fashion, trends can shift almost overnight. If inventory control takes a
good portion of your time, you won’t have enough time left to monitor industry trends.

6. CAUSES OF CASHFLOW PROBLEMS
• Seasonal fluctuations in sales
• A failure to send invoices out and collect customer payments on time
• Holding too much stock
• Poor financial planning
• An undisciplined approach to spending
• High overheads such as rent and utilities
• Bad debts

7. CASHFLOW SOLUTIONS
Audit your Finances: This should be planned carefully. If you are going to reduce the
outgoings then you must distinguish between the costs that are essential to the business and those
that are not.
• For example, moving to a cheaper location might reduce the money you spend on rent, but
would your business be damaged by the loss of prestige. Introducing a complementary product
line or service may be an easy way to boost your revenues, but what additional costs will that
create?
Free up Assets: looking critically at some of the assets your business owns and selling
those that aren’t absolutely essential to the running of your business could be an easy,
although not necessarily quick way of increasing your working capital. If you’d prefer not to
sell a business asset, leasing it out could bring in additional income while allowing you to
retain ownership.

8. Prioritise Credit Control: Late payments from customers and bad debts (when
payments aren’t made at all) can be hugely damaging for a business’s cashflow position.
Formalise the process of chasing late payments and making sure your debtor book is up to date. Taking
steps such as charging interest on late payments and offering discounts for early payments can help to
increase the likelihood that payments will be made on time.
Negotiate Favourable Credit Terms with your Suppliers:
If your customers pay you within 60 days of a product or service being delivered but you pay your
suppliers within 30 days, you’ll have a period of 30 days where you’ve paid more money out than you’ve
recouped. If not planned for, that can easily create a cashflow shortfall. If you have a good payment
history with your suppliers, they may be open to extending your payment terms.
Create Cash Flow Forecasts:
Creating and using cashflow statements regularly will let you know how much cash reserve the business
will need in the coming months. If a seasonal dip in sales or a one-off requirement for cash is expected in
the months ahead, you can take the necessary precautions now, such as organising a line of credit, so
there’s no negative impact on your business.