Reference no: EM133204056

Not having enough cash to pay your bills when they become due (insolvent) is one of the major causes of business failure. This is known as a cash flow crisis.

Your friend John runs a business that imports products from Asia and sells them to both retail and business customers. He has a physical shop and an online store. During some months his sales are very good, but others are poor. He has not worked out if there is a pattern to this.

To get the best price John buys the goods in bulk and pays the manufacturer in advance in their local currency. He then ships the goods to Australia and stores them in a Sydney warehouse.

Most customers are given 30-day invoices, irrespective of the quantity of goods they buy. John believes that most customers pay on or before the 30 days, but he thinks that some may be paying much later, possibly as late as 60 days (but he is not sure).

John has asked for your help as he is concerned about cash flow within the business. From what you know about John's business:

Question 1: Provide suggestions to John about how he could reduce the risk of this crisis occurring?