in business: explain how rising sales could cause a decrease in a
company's cash position; provide three recommendations on ways to
reduce the cash gap.

Dear banctec-ga:


As a firm's sales rise, its cash position can be decreased through
having to fund accounts receivable, increased inventory levels, and
pay for transportation costs to deliver its products to its customers.
 If the firm has to pay its suppliers and manufacturing expenses
before it can convert its accounts receivable into cash by receiving
payments from customers, then its cash position will decrease.

Several options are available to the firm to improve its cash
position.  The first would be to try to speed up collections from its
customers so that accounts receivable do not grow as fast.  One common
approach is to offer a small discount for rapid payment, such as 2%
10, net 30.  This incentivizes customers to pay in 10 days rather than
30.  Another approach is to postpone payments to suppliers so that
cash is collected from customers before suppliers are paid.  A third
approach is to sell securities to raise cash.  These could include
stock, short-term debt, and long-term debt.  The firm can also factor
its accounts receivable by selling them to a third party at a discount
to face value.  Another approach is to try to keep inventory levels as
lean as possible so that cash is not tied up in them.

Having sufficient working capital on hand is critical to success. 
Poor cash management can lead to bankruptcy even if the firm is highly
profitable.  One firm that has done an excellent job with cash
management is Dell.  The company collects cash from its customers much
faster than it has to pay its suppliers because of its extremely lean
inventories enabled by its build-to-order model and efficient
manufacturing processes.  As a result, growth in sales actually
generates cash rather than consuming it.

Sincerely,

Wonko

thank you so much, this is the answer i was unable to find. mr. wonko
did a faboulus job.*****

I'll offer you a few comments.  You don't state too many details about
your operations (or hypothetical company), so the answers and comments
you'll get are going to be pretty generic.

Assuming you carry inventory, I would add the comment that your cash
position will be adversely affected by carrying 'excess' inventory. 
This is different from having a 'lean' inventory.  Lean means a little
a possible.  You need to be careful how 'lean' your inventory actually
is.  Careful analysis should be performed to determine optiminum
levels of inventory that should be on hand for every one of your
items.  You cannot just look at the total value, taken as a whole. 
From an operational standpoint, if your inventory is 'too' lean,
ultimately you may have products that may run out of stock and if
there is an immediate demand for that particular product, you will
lose sales.

Let's say you had a chain of stores and your comparable store sales
were a huge increase over last year.  This may lead you to the
conclusions, well let's build more stores, "I'm going to make a
killing."  The building of more stores will dramatically increased
your capital expenditures (capex), and while your sales will rise, you
cash position will fall (assuming your capex is greater than your
incremental revenue increases).

I'm hesitant to tell you this, but it technically answers your
question.  If you pay your bills late and collect your receivables on
time (or better), you cash position will improve.  I highly recommend
you do not do this, as you destroy relationships with the suppliers
crucial to providing you with the inventory needed for your sales. 
Technically, however, this is the way the mathematics works.


Hope these comments help.