improving cashflow using credit mgm

8/14/2019 Improving Cashflow Using Credit Mgm

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Improving cash flowusing credit managementThe outline case

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Improving cash ow using credit management

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ForewordThis guide explores credit and cash management in small and medium sized enterprises and includes advice onmaximising cash in ows, managing cash out ows, extending credit and cash ow orecasting. It is not intended to becomplex or exhaustive, but rather to act as a basic guide or fnancial managers in smaller businesses.

Cash ow management is vital to the health o your business. The o t-used saying, `revenue is vanity, proft is sanity;but cash is king` remains sage advice or anyone managing company fnances. To put it another way, most businessescan survive several periods o making a loss, but they can only run out o cash once.

The importance o cash ow is particularly pertinent at times when access to cash is di fcult and expensive. A creditcrunch creates extreme orms o both o these problems. When the `real economy slips into recession, businesses acethe additional risk o customers running into fnancial di fculty and becoming unable to pay invoices which, allied toa scarcity o cash rom non-operational sources such as bank loans, can push a company over the edge.

Even during buoyant economic conditions, cash ow management is an important discipline. Failure to monitor credit,assess working capital the cash tied up in inventory and monies owed or ensure cash is available or investment canhamper a companys competitiveness or cause it to overtrade.

From its headquarters in London and eleven o fces outside the UK, CIMA supports over 171,000 members and studentsin 165 countries. CIMAs ocus on management unctions makes them unique in the accountancy pro ession. The CIMAqualifcation is recognised internationally as the fnancial qualifcation or business and its reputation and value aremaintained through high standards o assessment and regulation.

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4Improving cash ow using credit management

Contents

Improving cash ow using credit management the outline case 5Working capital 6

1. The cash ow cycle 7In ows 7Out ows 7Cash ow management 7Advantages o managing cash ow 8Cash conversion period 9

2. Acclerating cash in ows 10Customer purchase decision and ordering 10Credit decisions 10Fulflment, shipping and handling 10Invoicing the customer 10Special payment terms 11The collection period 11Late payment: a perennial problem 11The Late Payment o Commercial Debts (Interest) Act 1998 1Bad debts 1Improving your debt collection 1Payment and deposit o unds 1

3. Credit management 14Credit policy 14Credit in practice 14Credit checking: where and how 14Credit insurance 15

4. Cash ow orecast 16Forecasting cash in ows 16Average collection period 16Accounts receivable to sales ratio 17Accounts receivable ageing schedule 17Forecasting cash out ows 18Accounts payable ageing schedule 18Projected outgoings 19Putting the projections together 0

5. Cash ow surpluses and shortages 1Surpluses 1

Shortages 1Factoring and invoice discounting 1Asset sales

6. Using company accountsCurrent ratio Liquidity ratio or acid test or quick ratio ROCE (Return on Capital Employed) Debt/equity (gearing) Proft/sales 4Debtors days sales outstanding 4Creditors days sales 4

7. Cash management, credit and overtrading: a case study 5

8. Conclusion 6

9. Further reading 7


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Improving cash ow using credit management the outline caseCash ow is the li e blood o all businesses and is the primary indicator o business health. It is generally acknowledgedas the single most pressing concern o most small and medium-sized enterprises (SMEs), although even fnancedirectors o the largest organisations emphasise the importance o cash, and cash ow modelling is a undamental parto any private equity buy-out. In a credit crunch environment, where access to liquidity is restricted, cash managementbecomes critical to survival.

In its simplest orm, cash ow is the movement o money in and out o your business. It is not proft and loss, althoughtrading clearly has an e ect on cash ow. The e ect of cash ow is real, immediate and, if mismanaged, totallyunforgiving. Cash needs to be monitored, protected, controlled and put to work. There are four principles regardingcash management:

Cash is not given. It is not the passive, inevitable outcome o your business endeavours. It does not arrive in yourbank account willingly. Rather it has to be tracked, chased and captured. You need to control the process and thereis always scope or improvement.Cash management is as much an integral part o your business cycle as, or example, making and shipping widgetsor preparing and providing detailed consultancy services.Good cash ow management requires in ormation. For example, you need immediate access to data on:

your customers creditworthiness your customers current track record on paymentsoutstanding receipts your suppliers payment termsshort-term cash demandsshort-term surplusesinvestment optionscurrent debt capacity and maturity o acilitieslonger-term projections.

You must be master ul. Managing cash ow is a skill and only a frm grip on the cash conversion process will yieldresults.

Pro essional cash management in business is not, un ortunately, always the norm. For example, a survey conducted bythe Better Practice Payment Group in 006 highlighted that one in three companies do not confrm their credit termsin writing with customers. And many fnance unctions do not maintain an accurate cash ow orecast (which is crucial,as well see later).

Good cash management has a double beneft: it can help you to avoid the debilitating downside o cash crises; and itcan grant you a commercial edge in all your transactions. For example, companies able to aggressively manage theirinventory may require less working capital and be able to extend more competitive credit terms than their rivals.

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Working capitalWorking Capital re ects the amount of cash tied up in the business trading assets. It is usually calculated as: stock(including nished goods, work in progress and raw materials) + trade debtors - trade creditors. It is made up o threecomponents:

Days sales outstanding (DSO, or `debtor days) is an expression o the amount o cash you have tied up in unpaidinvoices rom customers. Most businesses o er credit in order to help customers manage their own cash owcycle (more on that shortly) and that uncollected cash is a cost to the business. DSO = 65 x accounts receivablebalance/annual sales.Days payable outstanding (DPO or creditor days) tells you how youre doing with suppliers. The aim here is ahigher number, i your suppliers are e ectively lending you money to buy their services, thats cash you can useelsewhere in the business. DPO = 65 x accounts payable balance/annual cost o goods sold.Finally, your days of inventory (DI). This is tells you how much cash you have tied up in stock and raw materials.Like DSO, a lower number is better. DI = 365 x inventory balance/annual sales.

Almost all businesses have working capital tied up in receivables and inventory. But not all o them. Many o the UKsbig supermarkets chains, or example, have negative working capital. Customers pay in cash at the tills, but stock isprovided by suppliers on credit, o ten on very generous terms. That means that at any given time, the supermarket has

excess cash which can be used to earn interest or be invested in new store roll-outs, or example. Thats one reasontheir business model is so success ul and demonstrates the importance o cash ow management.

Working capital consultancy REL conducts an annual survey o Europes biggest businesses. In its 008 report, it saidthat in response to the global recession, they were paying suppliers more slowly to artifcially bolster their balancesheets. `But in doing so theyre o ten damaging supplier relationships and creating gains that cant be sustained over time, claimed the report. A typical European company [in 2008 was] taking over 45 days to pay its suppliers - nearly a day and ahal longer than last year.

So simply cutting down on your DSO or increasing your DPO are not necessarily good long-term solutions. Smartmanagement o cash ow cycle, including tighter business processes and better credit management, is essential.

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1. The cash ow cycleCash ow can be described as a cycle. Your business uses cash to acquire resources. The resources are put to work andgoods and services produced. These are then sold to customers. You collect their payments and make those undsavailable or investment in new resources, and so the cycle repeats.

It is crucially important that you actively manage and control these cash in ows and out ows. So what do these looklike?

In owsCash in ow is money coming into your business:

money from the sale of your goods or services to customersmoney on customer accounts outstandingbank loansinterest received on investmentsinvestment by shareholders in the company.

Out owsCash out ow is, naturally, what you pay out:

purchasing nished goods for re-salepurchasing raw materials to manufacture a nal productpaying wagespaying operating expenses (such as rent, advertising and R&D)purchasing xed assetspaying the interest and principal on loans

taxes.

Cash ow managementCash ow management is all about balancing the cash coming into the business with the cash going out. The danger isthat demands or cash, rom the landlord, employees or the tax man, arrive be ore cash youre owed is collected. Moreo ten than not, cash in ows seem to lag behind your cash out ows, leaving your business short. This money shortage is your cash ow gap.

I a company is trading proftably, each time the cycle turns, a little more money is put back into the business thanows out. But not necessarily. I you dont care ully monitor your cash ow and take corrective action when necessary,

your business may fnd itsel in trouble. I cash ow is care ully monitored, you should be able to orecast how muchcash will be available on hand at any given time, and plan your business activities to ensure there is always cash to

meet upcoming payments.


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Advantages o managing cash owHaving a clear view o where your businesses cash is tied up, unpaid invoices, stock and so on, what cash is coming in(and when) and what cash commitments you have coming up is hugely benefcial:

you can spot potential cash ow gaps and act to reduce their impact, or example, by negotiating new terms withsuppliers, resh borrowing or chasing overdue invoices. you can plan ahead allowing you to make investments without worrying that existing commitments will not bemet. you can reduce your dependence on your bankers and save interest charges by paying down debt. you can identi y surpluses which can be invested to earn interest. you can reassure your bankers, investors, customers and suppliers that your business is healthy in times o aliquidity squeeze. you can be reassured that your accounts can be drawn up on a going concern basis and, i your accounts aresubject to audit, you can also reassure your auditors.

Customer purchase decision and ordering

The credit decision

Order fulfilment, shipping and handling

Invoicing the customer

The average accounts receivable collection period

Payment and deposit


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Cash conversion periodThe cash conversion period measures the amount o time it takes to convert your product or service into cash in ows.

There are three key components, which will be amiliar as constituents o working capital.

Inventory conversion the time taken to trans orm raw materials into a state where they are ready to ulflcustomers requirements. A manu acturer will have unds tied up in physical stocks while service organisations willhave unds tied up in work-in-progress that has not been invoiced to the customer.Receivables conversion the time taken to convert sales into cash.Payable deferment the time between taking delivery of input goods and services and paying for them.

The net period o (1+2)-3 gives the cash conversion period (or working capital cycle). The trick is to minimise (1) and (2) and maximise (3), but it is essential to consider the overall needs o the business.

The chart below is an illustration o the typical receivables conversion period or many businesses.

The ow chart represents each event in the receivables conversion period. Completing each event takes a certainamount of time. The total time taken is the receivables conversion period. Shortening the receivables conversion periodis an important step in accelerating your cash in ows.

Ask yourself:

how much cash does my business have right now?how much cash does my business generate each month?when do we aim to get cash in or completed transactions?and how does this compare to the real situation or cash in?how much cash does my business need in order to operate?when is it needed?how do my income and expenses a ect my capacity to expand my business?

I you can answer these questions, you can start to plot your cash ow profle. We return to this important disciplinein some detail under the budgeting section which can be viewed in the section our. But i you can plan a response inaccordance with these answers, you are then starting to manage your cash ow!

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. Accelerating cash in owsThe quicker you can collect cash, the aster you can spend it in pursuit o urther proft or to meet cash out ows suchas wages and debt payments. Accelerating your cash in ows involves streamlining all the elements o cash conversion:

the customers decision to buythe ordering procedurecredit decisions

ulflment, shipping and handlinginvoicing the customerthe collection periodpayment and deposit o unds.

Customer purchase decision and orderingWithout a customer, there will be no cash in ow to manage. Make sure that your business is advertising e ectively andmaking it easy or the customer to place an order. Use accessible, up-to-date catalogues, displays, price lists, proposals

or quotations to keep your customer in ormed. Provide ways to bypass the postal service. Accept orders over theInternet, by telephone, or via ax. Make the ordering process quick, precise and easy.

Credit decisionsDun and Bradstreet has calculated that more than 90% o companies grant credit without a re erence. I credit termsand conditions are not agreed in advance and re erences checked, you risk trading with `cant pay customers as wellas `wont pay ones. Salespeople, in particular, need to remember that a sale is not a sale until its been paid or andextending credit haphazardly might look good or their fgures (and the P&L, at least initially), but can be disastrous orcash ow. (See section three on credit management or more details.)

Fulflment, shipping and handlingThe proper ulflment o your customers orders is most important. Terms and conditions apply as much to you asthey do your customers. The cash conversion period is increased signifcantly i your business is unable to supply tospecifcation or within the agreed timetable, whether thats because you have a problem with inventory or productionprocesses; or because you lack the skilled resources to provide the services requested.

Metrics such as inventory turnover, inventory levels or stock to sale ratios will help measure the e fciency o yourinventory process. Benchmarking against industry standards can provide additional guidance on where you stand andhighlight potential opportunities or process improvement.

Invoicing the customerI you dont invoice, you wont be paid. Design an invoice that is better than any coming into your own company, or

copy the best ones you see. Keep it brie and clear. Get rid o any advertising clutter, the invoice is or accounts sta ,not purchasers. Invoice within 4 hours o the chargeable event. Remember that you wont get paid until your bill getsinto the customers payment process.

An invoice includes the ollowing in ormation:

customer name and addressdescription o goods or services sold to the customerdelivery datepayment terms and due datedate the invoice was preparedprice and total amount payableto whom payablecustomer order number or payment authorisation you own details, including address, contact numbers and emails, company registration and VAT re erence.


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Send the invoice to a named individual. Electronic invoices, sent by email or using internet based systems, arebecoming more common. I you do use the postal service, use a courier or recorded delivery or very large valueinvoices. Make sure, above all, that the invoice is accurate.

Special payment termsAccounts on special terms should be grouped together in the ledger or constant collection attention. Any de ault a teragreement o special terms should lead to cash only terms.

The collection periodCustomers are o ten given 0 days rom the date o the invoice in which to pay. The time allowed is under your controland you can speci y a shorter period i you need to, particularly i the customer is a consumer rather than a businessthat will be managing its own cash ow cycle. You must judge the beneft to your cash ow against the possible cost odeterring some customers.

Dont eel guilty about collecting a debt. You are owed money or goods or services supplied. The law is on your side.Start the collection process as soon as the sale is made. Never orget that the reputation, survival and success o yourbusiness may depend on how well you are able to collect overdue accounts.

Bear in mind:

customers will list their best re erences on a credit application so look beyond the obviousfnd out why they have switched business to you is it because other suppliers have ceased trading with them?collecting debts is a competitive sport i youre not getting paid then someone else might beverbal communication is best and helps develop relationships that can ensure problems are agged up earlydont wait longer than 60 days past the due date be ore cutting o creditwhen things get really problematic, de er to a third party dont get emotionally involved. Let a debt collectionagency handle it.

Late payment: a perennial problemThe Payment League Tables, a joint venture between the Institute o Credit Management (ICM), the CreditManagement Research Centre (CMRC) and CreditScorer Ltd, collects in ormation on the average number o days ittakes UK plcs to pay their invoices. The data is updated throughout the year, as soon as each company fles a new set o

ull accounts with Companies House and a dedicated website,www.paymentleague.com , enables users to fnd the number o payment days by company name, as well as within anindustry sector.

In January 008

The average length o time it takes a plc to pay its suppliers is 44 days.A f th o companies listed take more than 60 days to pay.

19 companies are named as taking more than 00 days to pay.Finance companies continue to be the best sector payers, with 60% paying within the normal agreed time o 0days.

At times when bank credit is scarce, there is a danger that companies will manage their cash ow by paying supplierslater. For example, the amount owed to smaller frms in the UK increased to more than 8. bn even be ore the worsto the credit crunch hit, according to a Barclays Local Business survey conducted early in 008. Research conducted bythe Forum o Private Business in August 008 claimed that 56% o UK small business managers thought late paymentwas getting worse.

Barclays 2008

The problem is global. In Australia, a Dun & Bradstreet report published in April 008 revealed that the averagepayment period across all industries had reached 55.8 days. Companies with more than 500 employees took 6 .7 daysto make payments, more than double the standard payment terms, up rom 58.9 days in the second quarter o 007.

Dun & Bradstreet 2008


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The Late Payment o Commercial Debts (Interest) Act 1998UK legislation gives businesses a statutory right to claim interest i another business pays its bills late. At one time,businesses were only able to claim interest on late paid debts i they included a provision in their contracts or i thecourts decided to award interest in a ormal dispute. The Late Payment o Commercial Debts (Interest) Act 1998changed all that.

Bad debtsLate payment sometimes escalates to become a bad debt. I you are making 1.5% proft on sales, an uncollected debto 1,500 nullifes 100,000 worth o sales. Worse still, poor credit management means that you will have to expendadditional time and resources to collect debts, so even i you are paid eventually, you will incur costs that are `hiddenaround those accounts. This scenario is not uncommon in business. On the other hand, the absence o any doubt ul, asopposed to bad, debt may mean that you have been missing out on business by being overcautious.

Remember that bad debts sometimes arise rom disputes over the goods or services you have supplied. Thats why it isimportant to develop good interpersonal relationships with customers and their accounts teams; and why you shouldhave a clear and rapid disputes escalation process, ensuring senior decision makers can resolve perceived problems toensure problem accounts are quickly resolved.

Improving your debt collectionThe key to improving your ability to collect overdue accounts is to get organised.

Use aged debtor analysis. Maintain a list o accounts receivable due and past due. Senior management can use itto monitor trends and control weaknesses, while credit controllers have a ready made to-do list o customers tochase. List accounts in order o size and due date, frst ranking largest debt frst and second ranking earliest date frst.Accountancy so tware will typically automate this task, but even using the SORT unction in a spreadsheet will work.

Learn the debtors payment cycle. When dealing with large companies, fnd out the last day or getting an invoiceapproved and included in the payment run. Call a couple o days be ore that date to make sure that they have all thedocumentation rom you that they need.

Anticipate where you can. Consider giving a reminder call the week be ore your payment is due, especially i you haveidentifed a specifc group o customers which tends to pay late.

Start with a serious letter. I a problem emerges, pay a solicitor to write one or you. I you want to get results, getserious rom the start.

Use personal visits. Letters are generally the least e ective method o chasing debts (although legal letters do havemore impact); emails and telephone calls score better; but personal visits are the most e ective. I you have a problemwith payment, talk to the person who is responsible or buying your goods or services. Point out that i the credit limitis breached, you may have to withhold your goods in uture i payment is not made.

Payment and deposit o undsEven i your customers pay invoices on time, how they trans er the cash to you can make a big di erence to yourconversion period. Consider the customers position. He or she will delay payment as long as possible, to improve hisor her cash ow cycle. Relying on the postal service or receipt o your customers cheques can add one to three days(possibly more) to your cash conversion period, not counting the need or a cheque to clear. So fnd ways to bypass thepostal service, such as by using couriers, or use electronic means to pay direct to your company bank account. BACSpayments are immediate.


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Ask yoursel :

do invoices go out immediately a ter goods or services are delivered?do monthly statements go out reliably on the last day o the month?are the terms o sale clearly and precisely shown on all quotations, price lists, invoices and statements?what is the actual average length o credit you are giving?what length o credit do customers take?do you stick to a collection procedure timetable?are you polite but insistent in your collection routine?how do your Days Sales Outstanding (DSO) compare with industry norms?do you monitor your receivables report daily?do you watch the ratio o total debt on balances on the sales ledger at the end o each month in relation to thesales o the immediately proceeding 1 months? Is the position improving, deteriorating or static? Why?do your sales people recognise that `Its not sold until its paid or? Are they incentivised to act accordingly?can you identi y trends that can help you anticipate customer behaviour and have action plans in place to mitigatelate payment?


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. Credit managementMost business-to-business companies extend credit to their customers. It is o ten a crucial tool or attractingcustomers. How you manage that process is a undamental part o cash ow management. People who owe youmoney, debtors, are a vital part o cash in ow and poorly managed credit can mean delays in converting sales to cashor, more seriously, trading with customers who are unable or unwilling to pay.

Credit policyYour companys credit policy is important. It should not be arrived at by de ault. The board should determine yourcompanys credit criteria, which credit rating agency you use, who is responsible or checking prospective and existingcustomer creditworthiness, the companys standard payment terms, the procedure or authorising any exemptionand the requirements or regular reporting. The policy should be written down and kept up to date with currentcreditworthiness o specifc customers, especially ones with large lines o credit or that increase their orders, pluswarnings or notes o current poor experience. The policy should be disseminated to all sales sta , the fnancialcontroller and the board.

Credit in practiceStart your credit decision making process when frst meeting with new prospective customers or clients. I necessary,consider allowing small orders to get underway quickly. This may be a reasonable level o risk and may ensure that newbusiness is not lost. In a sales negotiation it is pro essional, not ànti-selling, to be up ront about terms or payment.Use an Àccount Application Form that includes a paragraph or the buyer to sign, agreeing to comply with yourstated payment terms and conditions o sale. On a `welcome letter restate the terms and conditions. Your ÒrderConfrmation orms can stress your terms and conditions. Invoices should show the payment terms boldly on the rontand re-state the date the payment is due.

Its worth bearing in mind that lax credit decisions are o ten exploited by raudsters. The amous `long raud involvesa customer making a series o small purchases which are paid or in ull. Gradually, the supplier gains confdence andextends more and more credit. The raudster then places a very large order, and disappears with the goods. But itneednt be raud: a company with its own problems might attempt to trade out o trouble and go bust leaving you withmassive unpaid invoices.

Its a good idea to prioritise your research. The 80/ 0 rule suggests that 0% o your customers will generate 80% o your revenue, so list accounts in descending order o value and give the top slice a ull credit check and regular review.The smaller ones do need attention, but are a lower priority, unless monitoring reveals poor payment per ormance.

Credit checking: where and howA ull credit report on a limited company will cost in the region o 0 rom a rating agency and include fnancialresults, payment experience o other suppliers, county court judgements, registered lending and a recommended creditrating. The agency will provide a ull description to accompany the score, and you should choose one that deliversreports immediately on request, and online.

The Register o County Court Judgements (CCJs), maintained by Registry Trust Ltd on behal o the court service,contains details o almost all money judgements rom the county courts o England and Wales or the previous six years. Any individual, organisation or company can carry out a search o the Register (by post, in person or by email) ora small ee. Some o the biggest, most respected companies in the UK have county court judgements against them, soits not the only actor to consider.

The Companies Act requires public limited companies and their large private subsidiaries to state in days the averagetime taken to pay their suppliers and to publish this fgure in their directors report. This in ormation provides smallsuppliers with a broad indication o when they can expect to be paid.

Every company must fle accounts at Companies House and although these can be somewhat out-o -date, they area good source o general in ormation. I your customer is a limited company, ask it to provide a current copy o its

interim accounts and annual report and accounts as a condition o trading.


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Finally, visiting customer premises yields valuable intelligence. It is a use ul way to roughly assess general e fciency,pro essionalism and morale. I the company seems well run and e fcient, you may be justifed in extending a good lineo credit. I the situation eels bad, i the premises are in poor repair, people look nervous or overworked or theres alack o activity, be more cautious.

A great way o assessing a business is to o er a cash-up- ront discount or goods and services. A well run, cash rich

business will o ten take the discount, particularly i their fnance unction is sharp enough to calculate the beneft o thediscount versus the value o credit. Companies that are struggling will always take the credit option; allowing you to vetthem more thoroughly as described above.

Credit insuranceWhile a clear, well communicated and properly en orced credit policy will help ensure you convert sales to cash, thereis an increasingly wide range o ways o managing credit and exposure to customers.

Credit insurance is one such example. Taking out this kind o policy will cover either individual accounts or a businesssentire turnover. It is most commonly used in international trading, where chasing and recovering cash rom customersis much harder, justi ying the costs. But it can apply to any situation where large amounts o credit are extended.

Not surprisingly, it is much harder, and much more expensive, to get credit insurance when the risks increase. Both thecredit crunch and the recession massively increase the risk o customers de aulting on monies owed, so it is becomingmuch harder to obtain cover.

Ask yoursel :

do you check the fnancial standing o all new customers be ore executing the frst order?do you periodically review the fnancial standing o existing customers, especially those increasing their order size?do you use the telephone when checking trade re erences to ensure youre getting a rank opinion that might not becommitted to paper?do you incentivise salespeople by cash in, rather than sales made? Do you include risk metrics in their per ormancetargets?

who supervises credit decisions and research? Who ensures the prompt collection o monies due and who isaccountable i the credit position gets out o hand?do you measure the per ormance o your risk and credit control teams and are their incentives linked to thosemetrics?are your normal credit limits explicit both in terms o total indebtedness or each customer and payment period?do you make your credit terms very clear up ront?


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4. Cash ow orecastThe cash ow orecast, or budget, projects your business cash in ows and out ows over a certain period o time. It canhelp you see potential cash ow gaps, periods when cash out ows exceed cash in ows when combined with your cashreserves, and allow you to take steps to avoid expensive, uncontrolled overdra ts or ailure to meet crucial paymentssuch as wages. These steps might include lowering your investment in accounts receivable or inventory, increasing oradvancing receipts, or looking to outside sources o cash, such as a short-term loan, to fll the cash ow gaps.

I youre applying or a larger loan, you will need to create a cash ow budget that extends or several years intothe uture. But or most business needs, a six-month cash ow budget is probably about right. At a bare minimum,all businesses should be able to make an accurate cash orecast or 1 weeks ahead, long enough to spot potentialproblems and capture quarterly costs, but short enough to be realistic on sales and debt collections. This ought to be arolling orecast, re-calculated weekly or even daily, and is particularly use ul when the business is under stress or duringa credit crunch.

A cash ow budget involves:

a sales orecastanticipated cash in ows (a realistic assumption o payments being made)anticipated cash out ows (payments youll need to make, plus operating expenses such as rents, taxes, wages andutility bills alling due)a cash ow bottom line (highlighting potential surpluses which could be re-invested or deposited; and defcits,which must be covered with loans or shareholder capital i cash in ows cannot be accelerated).

CIMA recommends the direct method or cash ow orecasting, where you report cash in ows and cash out owsdirectly rom the operating activities. This prevents you rom having to calculate variances rom one fnancial statementto another and to re-classi y items. Spreadsheets such as Excel are probably the most commonly used tool or the

orecast. Larger companies might go or more integrated options where their operating systems can be linked to theircash orecasting system.

Forecasting cash in owsForecasting your sales is key to projecting your cash receipts. Any orecast will include some uncertainty and will besubject to many variables: the economy, competitive in uences, demand, etc. It will also include other sources orevenue such as investment income, but sales is the primary source. I your business only accepts cash sales, then yourprojected cash receipts will equal the amount o sales predicted in the sales orecast.

Projecting cash receipts is a little more involved i your business extends credit to its customers. In this case, you musttake into account the collection period or your accounts receivable (AR). Money tied up in unpaid invoices is notavailable or paying bills, repaying loans, or expanding your business (unless you have a actoring or invoice discounting

acility in place see section 5). So you must use a realistic assessment o what proportion o AR will be realised. Thiscan be based on:

average collection period

accounts receivable to sales ratioaccounts receivable ageing schedule.

Average collection periodThe average collection period measures the length o time it takes to turn your average sales into cash. A longeraverage collection period represents a higher investment in accounts receivable and less cash available. Reducing youraverage collection period will improve your cash ow.

The average collection period in days is calculated by dividing your present accounts receivable balance by youraverage daily sales:

current accounts receivable balance x 65

Average collection period = ------------------------------------------------------------------------------------------------------------------annual sales


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Accounts receivable to sales ratioThe accounts receivable to sales ratio looks at your investment in accounts receivable in relation to your monthly sales.Tracking this fgure will help you to identi y recent changes in accounts receivable. The accounts receivable to salesratio is calculated by dividing your accounts receivable balance at the end o any given month by your total sales orthe month.

accounts receivableAccounts receivable to sales ratio = ---------------------------------------------------------------------------------------

current sales or the month

A ratio o more than one readily shows that accounts receivable are greater than current monthly sales. This indicatesthat i this fgure persists, month on month, you will soon run into cash ow problems.

Accounts receivable ageing scheduleThe accounts receivable ageing schedule (or aged debtors analysis) is a listing o the customers making up your totalaccounts receivable balance, normally prepared at the end o each month. Analysing your accounts receivable ageingschedule may help you readily identi y the root o potential cash ow problems.

The typical accounts receivable ageing schedule consists o six columns:

column one lists the name o each customercolumn two lists the total amount duecolumn three is the current column, the amounts due rom customers or sales made during the current monthcolumns our to six list the amounts due rom previous sales periods (columns three to six will sum to column two).

For example:

Accounts Receivable Ageing Report Technical O fce Supply*, October 31, 200X, ()

Customer name Totalaccountsreceivable

Current 1- 0 dayspast due

1-60 dayspast due

Over 60 dayspast due

Consensus Computer Supply 400 450 750 750 450

HPJ Ltd. 4 00 4 00 - - -

South Schools Sport Stores 1500 1500 - - -

Denton Inc. 400 - 400 - -

JBJ Unlimited 000 1650 750 600 -

Park Enterprises 600 - 600 - -

Online Computers 900 900 - - -

Freestyle Ltd. 1800 1800 - - -

Total 16800 10500 4500 1 50 450

Percentage breakdown 100% 6 % 7% 8% %

*Technical O fce Supply is a fctitious company or example purposes only


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The ageing schedule can be used to identi y the customers that are extending their payment time. I the bulk o theoverdue amount in receivables is attributable to one customer, then steps can be taken to see that this customersaccount is collected promptly. Overdue amounts attributable to a number o customers may signal that your businessneeds to tighten its general credit policy towards new and existing customers.

The ageing schedule also identifes any recent changes in the accounts making up your total accounts receivable

balance. I the makeup o your accounts receivable changes, when compared to the previous month, you should beable to spot the change rapidly. Is the change the result o a change in sales, your credit policy, or is it caused by abilling problem? What e ect will this change in accounts receivable have on next months cash in ows? The accountsreceivable ageing schedule can sound an early warning and help you protect your business rom cash ow problems.

When in an economic downturn it is highly benefcial to review the receivables ageing schedule on a daily basis to help you to identi y any change early on and give you the opportunity to react quickly. At a time where access to cash is soprecious, it can make a signifcant di erence to a business.

Forecasting cash out owsProjecting your expenses and costs over a period o time is critical. An accounts payable (AP) ageing schedule may help you determine your cash out ows or certain expenses in the near uture. This will give you a good estimate o the cashout ows necessary to pay your bills and expenses on time. The cash out ows or every business can be classifed intoone o our possible categories:

costs o goods sold (payments to suppliers)operating expenses (wages, rents, taxes and so on)major purchases (new plant or premises, or example)debt payments (interest and principal plus payment o dividends to shareholders).

Accounts payable ageing scheduleThe accounts payable ageing schedule can help you determine how well you are (or are not) paying your invoices.While it is good cash ow management to delay payment until the invoice due date, take care not to rely too heavily

on your trade credit and stretch your goodwill (and uture credit terms) with suppliers. Worse still, late payments maydrive a supplier out o business, resulting in potential supply chain problems and threatening your own business.

An accounts payable ageing report looks almost like an accounts receivable ageing schedule. However, instead oshowing the amounts your customers owe you, the payables ageing schedule is used or listing the amounts you owe your various suppliers; a breakdown by supplier o the total amount on your accounts payable balance. Most businessesprepare an accounts payable ageing schedule at the end o each month.

A typical accounts payable ageing schedule consists o six columns as per the example or accounts receivableopposite. The number o columns, however, can be adjusted to meet your reporting needs. For instance, you mightpre er listing the outstanding amounts in 15 day intervals rather than 0 day intervals. You should take into account your suppliers terms o trade, to which you will already have agreed.

For example (see table on next page):


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Accounts Payable Ageing Schedule Technical O fce Supplies Ltd, December 1, 00X, ()

Suppliers name Totalaccountspayable

Current 1- 0 dayspast due

1-60 dayspast due

Over 60 dayspast due

Advantage Advertising 400 400 - - -

Manpower 4 00 900 00 - -

BMR Distributing Ltd. 1500 900 150 450 -

E.V.Jones Bookkeeping 900 450 450 - -

G.R.H Unlimited 000 1650 750 600 -

Prompt Quote Insurance Co 600 600 - - -

Wachtmeister O fce Supply 900 900 - - -

H.F. Dean Hardware 5 5 5 5 - - -

Total 140 5 11 5 1650 1050

Percentage breakdown 100% 81% 1 % 7%

The accounts payable ageing schedule is a use ul tool or analysing the makeup o your accounts payable balance.Looking at the schedule allows you to spot problems in the management o payables early enough to protect yourbusiness rom any major trade credit problems. For example, i G.R.H. Unlimited was an important supplier orTechnical O fce Supplies Ltd, then the past due amounts listed or G.R.H. Unlimited should be paid in order to protectthe trade credit established.

The schedule can also be used to help manage and improve your businesss cash ow. Using the example scheduleabove, Technical O fce Supplies will need to generate at least 11, 5 in income to cover the current monthspurchases on account.

Where possible you might want to think about supplier consolidation, as bigger orders should allow you to increase your power when negotiating payment terms.

Projected outgoingsOperating expenses include payroll and payroll taxes, utilities, rent, insurance and repairs and maintenance and, likethe cost o goods sold, can be fxed or variable. Rent, or example, is likely to be the same amount each month, and youll probably have plenty o notice o any change. However, payroll, goods in or utilities may vary in line with yoursales projections and have a seasonal aspect.

Purchasing new assets or the company tends to occur when the business is expanding or when machinery needsreplacing. Cash out ow in this area is generally large and irregular. Examples o fxed asset expenditure would be onnew company cars, computers, vans and machinery. In a situation where banks are reluctant to provide additional

unding, it makes sense to delay some o your major investments.

It is critical to have a purchasing policy in place that will ensure no signifcant expenses are made without beingapproved. A `No Purchase Order, No Pay policy can be implemented i not already in place. Also, managementaccounting techniques like Activity Based Costing (ABC) will help you identi y overheads or expenses that can beeliminated i your company is going through a rough time.

Projecting or debt payments is the easiest category to predict when preparing the cash ow budget. Mortgagepayments and lease hire payments will ollow the schedule agreed with the lender. Only payment against an overdra t,

or example, will be variable by nature.


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Putting the projections togetherProjected cash in ows minus out ows gives you your cash ow bottom line. The completed cash ow budget combinesthe ollowing in ormation on a monthly, weekly or even daily basis:

Opening cash balance

plus projected cash in owscash salesaccounts receivableinvestment interest

less projected cash out owsoperating expensespurchasescapital investmentdebt payment

equals

cash ow bottom line (the closing cash balance).The above cash ow budget is just a guide, you will obviously need to include a little more detail. However, the basic cash

ow budget will always remain the same.

The closing cash balance or the frst period becomes the second periods opening cash balance. The second periodsclosing balance is determined by combining the opening balance with the second periods anticipated cash in ows andcash out ows. The closing balance or the second period then becomes the third months opening cash balance and so on.

I a cash ow gap, where the balance is negative at any time, is predicted early enough, you can take cash owmanagement steps to ensure that it is closed, or at least narrowed, in order to keep your business going. These stepsmight include:

increase sales by lowering prices, or increasing marketing or utilisation rates (although this could worsen the gap i

your cash ow management is already poor)increase margins by cutting costs and/or raising prices (although you need to be mind ul o putting o customers orsqueezing suppliers)tighten cash processes such as collections or inventory managementdecrease anticipated cash out ows by cutting back on inventory purchases or cutting operating expenses such aswagespostpone a major purchasesell assets (but not those core assets essential to the business unless you can arrange a sale-and-leaseback deal on,

or example, property)roll over a debt repayment (much tougher in a credit crunch)seek outside sources o cash, such as a short-term loan.


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5. Cash ow surpluses and shortagesHow you deal with cash ow surpluses and shortages is a crucial part o the cash equation. Unused surpluses simplysitting in a current account suggest your business has su ered a ailure o planning, and in many cases shareholderswill consider it a ailure o management to put their money to work. Worse, i your cash ow orecast has identifed anupcoming shortage o cash and you ail to fll that gap, the result could be insolvency.

SurplusesI your business creates a cash surplus, you have important choices:

deposit the surplus cash, either overnight or on term deposit with a bank or with a proprietary money und, to earninterest until you are ready to use it elsewhereuse the cash to und capital investment or development and expansion in line with your longer-term corporatestrategypay out money to stakeholderspay creditors early to enhance your credit credentials or the uture

pay down debt to improve your balance sheet gearing ratio and make uture interest payments more manageable.I you choose this route, then there are considerations o whether there is a premium to be paid or early repaymentand whether it restricts your uture exibility given the scarcity o credit.

ShortagesI there is a requirement or additional unds, either to meet short-term payments or or longer-term development,there are several sources o new unds:

An overdra t acility. You should negotiate with the bank to agree acceptable limits and agree competitive interestrates. Youll be paying a premium over the base rate, so haggle. In act, during the credit crunch, many companieshave ound that this type o unsecured lending (where the bank has no asset to claim i you de ault) is increasinglyrare.

A short-term borrowing acility. The bank will allow you to draw down a specifc amount to be repaid in a specifednumber o days. The limits to the acility, the repayment periods and the interest rates will be negotiated with thebank. The interest on a short-term acility may be more avourable than or an overdra t, but again, banks havebecome increasingly risk-averse and may pre er a more structured option.A revolving credit acility. Again, you will agree acceptable limits to the acility and agree competitive interestrates. The acility will enable you to make withdrawals at short notice. It will also enable you to make unscheduledrepayments whenever you have a cash surplus. The saving on interest owed may outweigh the interest that couldhave been earned rom a separate investment.Fixed-term loans. The fnance can be loan debt or, or much larger amounts, a bond issue. The interest rate canbe fxed or variable. Haggle the premium and, indeed, do not be a raid to shop around. Although you will wantto maintain a good relationship with your bank, there are now many competing sources o sound fnance on themarket, especially since the de-mutualisation o many o the building societies. It is simply good business to take

the time to establish resh links with some o these.Fresh equity, either rom a private placing o shares, in private businesses, an injection o capital by existing or newinvestors, or a public o ering. This is an important source o unds and can be essential i the debt-equity ratio is tobe maintained at acceptable levels.

Factoring and invoice discountingWhile those options are all still open to businesses during the credit crunch, albeit in more costly and less generous

orms, an increasingly common solution to short-term cash ow problems is actoring and invoice discounting.

An invoice discounting frm, o ten a division o a bank or large corporation, will advance you a percentage o invoicedsales. (Factoring is pretty much identical, but is an increasingly uncommon term. Youll also hear it described as`invoice fnance or IF.)


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Invoice discounting contracts all have the ollowing elements in common:

Advance rate the percentage o your accounts receivable that companies will pay you. Very ew IF companieswill advance you the ull 100% up ront. Most will advance you something above 70% and then will pay you thebalance once the invoices theyre lending against have been paid. The typical range is 60% to 95% o your accountreceivables.

Discount rate the ee charged or setting up and maintaining the acility. The typical range is 1% to 7% o youraccounts receivable, depending on your payment terms.Recourse vs. non-recourse in a non-recourse agreement, the IF company bears the burden o collecting yourcustomers debts. In a recourse agreement, you bear the burden o bad debts (in other words, i they areuncollectable, they will be charged back to you). Obviously or a small business owner, the non-recourse agreementis pre erred, although the rates youll get will not be as good as with a recourse agreement.

The terms will vary rom one IF company to another. Always shop around be ore you make a decision. That said, theterms and rates o ered to you will depend upon your credit (or debtor) worthiness. Small businesses with higher salesvolumes or with what are viewed as stronger account debtors get better rates than those with small sales volumes ormore questionable account debtors. Un ortunately, the smaller the business, typically the worse the terms.

Be ore you commit to actoring, approach your bank frst or a loan using the accounts receivables as collateral. Bank

ees will typically be much lower than actoring ees and you should defnitely pursue that option i it is available to you.

Remember that passing on your invoices to be collected by a third party undamentally changes the relationship youhave with customers. You would hesitate be ore sending a baili to make good on an invoice rom a customer that wasonly a ew days overdue with a payment, but a actor or invoice discounter will chase as hard as they need to in orderto get paid.

Some IF frms o er confdential invoice discounting, which means your customers never know youre using theiroutstanding invoices to raise fnance. This leaves you with much more control over the customer relationship andnullifes any risk that customers will assume you have cash ow problems because you have resorted to actoring.

Asset salesSelling non-core assets could be an appealing solution i additional cash is required. For example, Lloyds TSB managedto gain additional unds through the sale o its Abbey Li e business to Deutsche Bank in July 008. Likewise, in 008 RBSwere looking to sell its ABN Amros Australian and New Zealand operations in the hope o securing 4 billion.

And sale leaseback transactions can allow businesses to raise money by selling assets while retaining use. In 007 HSBCagreed the sale and leaseback o its global headquarters, which raised 1.09 billion.


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6. Using company accountsWe re erred earlier to the wealth o in ormation to be obtained rom company accounts. This can provide a valuableinsight into your customers, their trading per ormance, creditworthiness, fnancial health and even their expansionplans or the uture.

Much o this is simply stated in the notes or can be gleaned rom the written reports rom the chairman, chie executiveand fnance director. Further insight can be gleaned rom a straight orward analysis o the fgures rom the proft andloss, balance sheet and cash ow reports. The standard way o analysing accounts is to calculate ratios. Ratios give you a set o fgures to match against industry and company standards.

The ollowing is a rough guide to acceptable ratios, but remember you must not rely on any one piece o in ormationto assess creditworthiness. For additional guidance on using company accounts see our use ul reading list at the end othis publication Using company accounts, urther reading.

Current ratioThis liquidity ratio is calculated by dividing current assets by current liabilities. It measures the ability to pay bills.

Low risk Average risk High risk

Over 1.5 1.01.5 Under 1.0

Current assets (cash + stocks + trade debtors) divided by current liabilities (amounts due under 1 year)

Liquidity ratio or acid test or quick ratioThis is a solvency ratio, the test o the companys true liquidity (actual cash + debtors vs. creditors + loans).

Low risk Average risk High risk

Over 1. 5 0.75-. 5 Under 0.75

Current assets (less stock) divided by current liabilities

ROCE (return on capital employed)This is a use ul proftability ratio. It is used to assess the proft, as a percentage, generated by the companys assets.

Low return Average return High return

Under 6% 8-11% Over 11%

Return on capital employed proft be ore tax divided by capital employed x 100: Table shows example o an ROCErange assuming a bank rate o 6% and a risk margin o -5%

Debt/equity (gearing)This assesses how heavily the company is relying on external unding to support the business.

Low Average High

Under 50% 50-90% Over 90%

Debt (loans, overdra t, etc.) divided by equity (shareholders unds) x 100


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An alternative defnition is debt divided by (debt plus equity), which would modi y the last table rom the previous page:

Low Average High

Under % -47% Over 47%

Proft/salesTo assess proft margin o sales a ter costs.

Low Average High

Under % 3-10% Over 10%

Proft be ore tax divided by annual turnover x 100

Debtors days sales outstandingTo assess the companys sales revenue recovery period in days.

Low Average High

Under 55 days 55-85 days Over 85 days

Total o debtors x 65, divided by annual sales

Creditors days salesTo assess the companys payment period in days.

Low Average High

Under 45 days 45-60 days Over 60 days

Total o creditors x 65, divided by annual sales


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7. Cash management, credit and overtrading: a case studyDuring a credit crunch and recession, every business needs to monitor cash ow. Where it is poorly managed, even acompanys successes can lead to its own down all. Simply put, big new orders require you to pay or new plant, extraworkers and additional stock be ore your brilliant new customer settles their invoice, resulting in you running out ocash. Hence the term insolvency by overtrading. It is surprisingly common to hear people say, `everything was all rightuntil we got that large order or, having just su ered insolvency, `next time I will keep the business small.

Heres an example to illustrate why cash ow management is vital, and how insolvency by overtrading might arise.It eatures fctional garage Alberts Autos, which provides car servicing and MOTs to local residents and breakdownrecovery.

Business is good, there is a steady stream o income rom repeat customers and the odd recovery signifcantly adds tothe co ers. There are no signifcant cash reserves and there is no need or an overdra t.

Suddenly the contact that passes on most o your `recovery work o ers Albert a contract to supply recovery servicesor a 50 mile radius. This is too good an opportunity to pass up. The recovery work has always been extremely

proftable in the past. It is Alberts chance to expand. He anticipates that the recovery work will increase fve- old, so hetakes on two extra mechanics. He has to buy additional garage space and he also needs two more recovery trucks.

Crucially, Albert does not run a cash ow orecast. So he has no idea exactly how much extra business is needed tocover the wages o the mechanics or the leases o the trucks. He borrows money or the additional garage space, but,again, does not actor debt repayments into his fnancial planning. Worse, because the new customer promises a lot obusiness, he expects credit hell pay or the recoveries and repairs in arrears at the end o each month.

In the frst week o accepting the new contract, ten recoveries are made. Fixing these cars takes longer than expectedand, to maintain credibility with his big new customer, he stops taking on work rom local customers and diverts e ortinto upholding the terms o his new contract. That means his regular sources o cash business have declined, again, lacko a cash ow orecast means he doesnt know how this will a ect his viability.

In week two, one o Alberts mechanics breaks his arm and is o sick, still being paid, but generating no income. He stillhas the workshop to run and the breakdowns to attend to. One o his recovery trucks is now lying idle, however. The

servicing work is mounting up and he is deluged with breakdown requests. There is nothing or it but to hire more sta .He calls an agency and take on two more mechanics, paying weekly wages.

Week three: the trucks are in ull use, but Albert is splitting his time between recovery work and the ew remainingservicing jobs hed already booked in. At the end o this week, cash is getting tight. Weekly wages must still be paid, butthe reduction in cash customers means the bank account is emptying ast. Work in the o fce is still mounting up andhe decides to take on an o fce manager so he can concentrate on the workshop to address complaints rom severalregulars or delays in servicing their vehicles. Meanwhile, Alberts Autos has seen no cash yet rom the recoveriescustomer, who is so delighted with Alberts service that he proposes to increase the contract to cover an even greaterdistance.

I Albert does not take this contract, uture work rom the contact may revert to just the odd recovery. I he acceptsthe deal, he may go out o business: cash out ows (wages, loan repayments, operating expenses) are spiralling out o

control, but he has yet to be paid or the recoveries to date and the cash work rom servicing is drying up.In considering whether to take the work he would have to consider not only whether or not he wants a biggergarage, but also whether he wants to expose his company to increased borrowing to fnance the means o providingthe recovery service (trucks, spares, trained mechanics). He would also probably lose his remaining local servicingcustomers. And i the recoveries work declines lets assume in month our, there are 5% ewer breakdowns locally hell be acing the same high costs, but with drastically lower cash coming in. Worse, i Alberts contact went out obusiness himsel , Alberts Autos would still have all the costs, but no income.

Expanding this business requires a solid business plan and cash ow orecast.

The problem is that growth is rarely o an incremental, easily absorbed nature. It usually represents a step-change. Anymanager has to ask whether they can cope, and model the cash ows to show how. In the example above, by ocusing

solely on the need to meet the recovery work, Albert has allowed a cash crisis to develop unnoticed and unchecked.


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Take the time to think big; plan your new projected cash ows, identi y the short alls, identi y the risks and secureample lines o credit. I the step-change is revealed to be too great you will at least have spotted it in time and you canplan a di erent route.

For comprehensive guidance on the issue o insolvency go to the Governments executive agency, the InsolvencyServicewww.insolvency.gov.uk

For a glossary o insolvency terms, go towww.insolvency.gov.uk/in ormation/guidancelea ets/guide/glossterm.htm

8. ConclusionAs outlined at the outset, cash ow is the li e blood o all businesses, and it becomes even more important whengoing through an economic downturn. Cash ow has to be managed. Cash management is as much an integral parto the business cycle as any other part o the process. The e ect o cash is real, immediate and, i mismanaged or notmanaged, it is very un orgiving. It can be your ruination, but with care will be your servant and reward.

Hope ully, this booklet has helped to illuminate where cash comes rom and where it goes in the cash ow cycle, and

provided you with insight into the basics o cash and credit management.Remember, sound cash management will give your business just as much o an edge in your transactions as, say, animprovement in your manu acturing process or service delivery. Control and prosper.

AcknowledgementThe frst edition o this booklet was prepared by Anita Allott, Research Analyst, CIMA Technical Services. Assistance wasgrate ully received rom Paul B. Jackson, Consultant Financial Management. The second edition has been updated byAudrey Besson-Levine and Richard Young.


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9. Further readingA Users Guide to Late Payment Legislation: the Late Payment o Commercial Debts (Interest) Act 1998, as amendedand supplemented by the Late Payment o Commercial Debts Regulations 00 .www.payontime.co.uk/legislation/legislation_main.htmlAccessed 19 January 009

Better Payment Practice Guide: Your Guide to Paying and Being Paid on Time.DTI URN 04/606.www.payontime.co.uk Accessed 19 January 009

The Better Payment Practice Group also published a users guide to the Act call 0870 150 500 and quote orderre erence URN 00/1 08.

Cash ow part o an online guide to Starting up in Business.www.businesslink.gov.uk Accessed 19 January 009

Financial Management Development: a no nonsense guide.

www.fnancialmanagementdevelopment.com Accessed 19 January 009

Getting Paid on Time. www.businesslink.gov.uk Accessed 0 January 009

Chartered Management Institute, Checklist 120: Cash ow or the Small Business. www.managers.org.uk Accessed 0 January 009

Chartered Management Institute, Checklist 194: Finding In ormation on the World Wide Web.www.managers.org.uk

Accessed 0 January 009CIMA Insight, Making sense o the credit crunch air value debate.www1.cimaglobal.com/cps/rde/xchg/live/root.xsl/Insight054600_4665.htm Accessed 0 January 009

CIMA Insight, Surviving a liquidity crisis.www1.cimaglobal.com/cps/rde/xchg/live/root.xsl/Insight054705_4795.htm Accessed 0 January 009

CIMA Excellence in Leadership, Back to Basics, September 008Barclays Local Business surveywww.newsroom.barclays.com/Content/Detail.asp?ReleaseID=1322&NewsAreaID=2 Accessed 0 January 009

Dun & Bradstreet reporthttp://dnb.com.au/Header/News/Business_payments_blow_out_amidst_tougher_conditions/indexdl_4258.aspx Accessed 0 January 009

Financial reporting council bulletin, Audit issues when fnancial market conditions are di fcult and credit acilities maybe restricted, January 008www. rc.org.uk/images/uploaded/documents/Bulletin 2008-1 _ or website_2.pdAccessed 0 January 009

BBC News, Global credit crunchwww.news.bbc.co.uk/2/hi/in_depth/business/2007/creditcrunch/de ault.stm

The Association o Corporate Treasurers: Contingency planning or a downturn in the economy.www.treasurers.org/system/fles/BriefngNoteContinPlnng05081.pd Accessed 0 January 009


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The Institute o Chartered Accountants: Credit crunch issueswww.icaew.com/index.c m/route/153360/icaew_ga/en/Technical_amp_Business_Topics/Topics/Credit_crunch_issuesAccessed 0 January 009

Using company accounts, urther reading

Anthony, R.N. and Breitner, L.K. ( 00 )Essentials o Accounting & Post-test Booklet 8,8th ed. [Prentice Hall] Fanning,D., Pendlebury, M. and Grover, R. ( 00 )

Company Accounts: Analysis, Interpretation and Understanding.[Thomson Learning]

Rice, A. ( 00 ) Accounts Demystifed: How to Understand Financial Accounting & Analysis,4th ed. [FT Prentice Hall]

St. John Price, A., (1999)Understanding Your Accounts A Guide to Small Business Finance,4th ed. [Kogan Page Ltd]

Walker ( 001) Accounting in a Nutshell.[CIMA Publishing]

Chartered Institute ofManagement Accountants

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