Identifying Cash Flow problems and planning for solutions - Assignment Example

Of the total sales of $208,000 in January, $20,800 was cash sales, and another $20,280, net of commission was from credit card sales, making a total of $41,080 collectible in the month of sales, namely January. Of the remaining $166,400, $55,470 is collectible in each of the following three months, namely February, March and April. Thus the total collections for the month of April against the sales of $208,000 are only $41,470. The expenses during the month of January are $187,070, of which $103,740 is against variable costs and $83,330 are fixed costs.

Consequently, there is a shortfall of $145,990 in the month of January. Similarly, there are shortfalls in the cash flows for the months of February and March to the tune of $106,490 and $46,530 respectively. The cash flow turns positive from April onwards showing that this is a temporary problem, as the cash collections from previous months will compensate for the delays in the subsequent months. However, such situations can recur in future if there is a sudden growth or dip in sales during a particular period.

It is obvious, from the above analysis, that the problem arises because of the delay in cash collections. There are several approaches that can be used to tackle this problem. Some of the possible measures that can be taken include taking deposits, offering discounts for prompt payments, and factoring receivables (Katz & Green, 2009, p. 464). In the case of Bulltuff, the most appropriate among these seems to be to offer a discount for early payment. Taking deposits may not be a viable alternative as all customers (dealers) may not agree to it.

It cannot be implemented selectively on only a few willing customers. Factoring receivables is likely to be costly. Consequently, offering discounts for early payments appears to be the most workable solution. The company could also simultaneously consider steps to delay the cash outflows