XYZ Trading typical cashflow before receipt of the new order
Numbers show what actually happened
|
July £000 |
July £000 |
August £000 |
August £000 |
Sept £000 |
Sept £000 |
|
|---|---|---|---|---|---|---|
|
Receipts |
||||||
|
Receipts from customers |
15 |
14 |
15 |
9 |
20 |
7 |
|
Loan |
||||||
|
15 |
14 |
15 |
9 |
20 |
7 |
|
|
Payments |
||||||
|
Purchase ledger suppliers |
5 |
10 |
5 |
15 |
7 |
15 |
|
Wages (inc. PAYE and NI) |
2 |
2.75 |
2 |
2.5 |
2 |
2.75 |
|
Rent |
1 |
1 |
1 |
1 |
1 |
1 |
|
Capital expenditure |
– |
|
– |
|
– |
– |
|
Corporation tax |
– |
|
– |
|
– |
– |
|
Value added tax |
– |
|
|
|
3 |
3 |
|
Miscellaneous |
1 |
1.5 |
1 |
1.75 |
1 |
1.75 |
|
10 |
15.25 |
10 |
20.50 |
14 |
23.50 |
|
|
Excess of receipts over payments |
5 |
-1.25 |
5 |
-11.5 |
6 |
-16.50 |
|
Add opening bank balance |
10 |
15 |
15 |
13.75 |
20 |
2.25 |
|
Closing bank balance |
15 |
13.75 |
20 |
2.25 |
26 |
-14.25 |
- XYZ won the contract in May. By September, existing customer sales had halved due to lack of follow-up by XYZ on new orders. Meanwhile XYZ hadn’t fully considered the impact on cashflow of raw material costs.
- Production took longer than expected due to a fault in the first run of stock. This required ordering of additional materials for the next two runs to make up numbers.
- XYZ finally made their first delivery in September. Payment terms were 30 days, so no money was due until October. By this time they had gone overdrawn, lost several loyal customers, and had to negotiate an expensive overdraft with their bank.
- Had XYZ used effective cash management techniques, it would have foreseen the cashflow problem and arranged a bank loan (cheaper than an overdraft) or an advance from the customer to tide it over. The forecast would also have highlighted the need to keep on top of existing customer orders.