Question

Jodi owns a business that designs and creates lingerie. In an effort to get her product into as many stores as possible, jodi has been lenient on the terms of collection, allowing stores at least 30 days credit. As a result, it is taking her too long to collect payments and she has inadequate cash flow. What is the most likely cause of jodi's business difficulties?

Answer 1

Answer:

Poor working capital management

Explanation:

Working capital management is a business operation strategy that monitors the maintenance of sufficient balance between the current assets and liabilities so that the company does not run out of liquidity at any point in the course of operation.

Receivables and cash management are two major components of working capital.

When debtors delay in paying , this will definitely cause a strain on the liquidity of the company , most especially when the creditors are demanding for their own payment as well as other financial obligation arising.

Answer 2

Jodi is not adequately managing the financial aspects of her business.

By being too lenient with the days credit, she is effectively damaging her business' cash flow.