Cash flow problems that is occurring more frequently these days

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Caption: While businesses are struggling to survive in the declining economy, creditors are demanding prompt payment.

Author: Ann Williams

Date: 9 May 2016

This article shows how Singapore retail companies are now facing some tight cash problems now that their creditors are demanding for prompt payment. This has definitely got to do with the way they handle their cash inflow and outflow. Businesses usually only pay a part of what they have to to creditors, or sometimes even hold back their payment for as long as they can due to the ‘time value of money’ concept. This is how they keep their business cash flow going. However, now that they are expected to pay their creditors promptly, their cash flow might be on the negative side due to that.

Now, moving on to relating this article to what I’ve learnt in this semester which the main topic is the time value of money. Under this main topic exists a sub topic which¬†might be related to this article which is ‘present and future values of cash flows’.

Firstly, based on my understanding, time value of money means the money that we hold in the present would be worth more than the same amount of money in the future. Usually for the debtors(?) side, it would be better for them to make their payment as late as possible, and for the creditor’s side, it is better for them to collect their payment as soon as possible. As much as I want to apply this concept for Surprise, it is not possible for us because in our case, we have to pay before we get our things.

The time value of money has a formula and the formula consists of the Future Value of Money (FV), Present Value of Money (PV), interest rate, number of compounding periods per year & the number of years. Though I don’t think this formula has that much relation to the article, I think it is an important part in the topic of Time Value of Money. Thus all in all, this article was mainly talking about how companies tend to stall their payment, but now with more creditors demanding prompt payment, it might take a toll on their cash flow, resulting in the negative effect of it.