C1 Cash Flow Problems
Impact of rising costs on the enterprise
As costs increase, the enterprise’s net cash flow decreases leaving less cash available to cover expenses. It can be difficult to raise prices regularly to stay on top of rising costs. If this leads to difficulties in paying suppliers or lenders on time, it can affect their relationships with suppliers and future eligibility to receive trade credit or loans. Lack of cash may make it difficult for an enterprise to invest in expansion or innovation needed to remain competitive.
Impact of rising costs on suppliers and cost of suppliers
Rising costs affect suppliers, who may raise their prices due to increased expenses for materials and labour. As business costs rise, they are faced with the choice of reducing their profit margins or passing on these higher costs to their customers through higher prices. Additionally, due to their own cash flow problems, suppliers might require upfront payments instead of allowing credit. This can pass on cash flow problems to businesses who need a credit period while they are waiting on payment from their own customers.
Impact of the Decline Phase of the Product Life Cycle on Sales Turnover.
As a product reaches the decline phase of its life cycle, sales will naturally start to decrease. This leads to lower cash inflows at a time when the business may still have significant costs related to that product. These may include any excess stock that hasn’t sold, rent, equipment and staff who are employed on that project.
