Interpret a cash-flow problem and respond
Interpret a forecast shortfall and compare an overdraft, supplier timing, faster receipts or delaying an asset purchase.
Exam scope and assessment notes
Cambridge IGCSE (9–1) Business Studies 0986, 2026 syllabus, Version 2. This is the separate 9–1 legacy route; 0774 replaces it for first assessment June 2027. Candidates are not assessed on constructing income statements or statements of financial position, nor on price-elasticity or exchange-rate calculations. Simple cash-flow forecast construction is assessed. Written practice is self-checked, not an official Cambridge grade; timed-paper evidence and human subject-teacher review remain outstanding.
Before you begin
- No previous finance study is assumed. Identify the time period, whether a figure is a stock or a flow, and the units before calculating or recommending.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which is a possible short-term response to a cash-flow problem?
What you will learn
- Identify the period and size of a shortfall
- Explain short-term responses
- Evaluate timing and stakeholder effects
Find when and why cash becomes tight
A forecast can show which period has a low or negative closing balance and how much cash is needed. A business should look at the timing of receipts and payments and identify whether the gap is temporary or reflects a continuing problem.
A temporary gap may be addressed with an agreed overdraft, asking customers to pay sooner, delaying a non-current asset purchase or negotiating supplier payment timing. Each action has costs and effects; a forecast helps compare them.
Choose a proportionate response
An overdraft provides flexibility but may involve fees, interest and limits. Faster customer collection can help but discounts or stricter terms may affect relationships. Delaying supplier payment without agreement can damage trust or breach terms.
Postponing an asset purchase can preserve cash, but may delay capacity or efficiency benefits. A recommendation should explain which response addresses the specific date and likely amount of the gap and what risk to check.
Pause and explain
Why should a business agree a supplier-payment extension?
Worked example
A forecast shows a $2,000 cash shortfall next week before a reliable customer payment arrives ten days later. Compare two short-term responses.
Show the worked solution
- The gap appears temporary, so match a short-term action to its amount and duration.
- An overdraft could bridge the gap if its limit and fees are acceptable.
- The firm could also ask the customer to pay earlier or agree revised supplier timing.
Answer An agreed overdraft could cover the $2,000 timing gap, subject to its cost and limit. The firm could also ask the customer to pay earlier or negotiate a supplier extension; it should agree any changed terms and confirm the expected receipt date.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A forecast shows the bank balance falling $1,200 below zero for one week, then recovering when a customer pays. Recommend a response and two checks.
Give me a hint
A short, quantified gap may suit a temporary bridge, but verify the assumptions.
Compare my reasoning
- Confirm the customer amount and payment date.
- Compare an agreed overdraft cost and limit with a permitted alternative.
- Check that the balance recovers after the payment and no earlier bill is missed.
A small agreed overdraft may bridge the one-week gap if its limit and charges are acceptable. The business should verify the customer's payment date and amount and check all interim bills; if the receipt is delayed, the shortfall may last longer.
Look for these in your work
- Response fits duration
- Terms checked
- Receipt and interim payments checked
A forecast has a cash shortage in three days, but several credit customers are overdue. Explain one collection action and one risk to manage.
Give me a hint
Bring cash forward while considering customer relationships and agreed terms.
Compare my reasoning
- Contact overdue customers with accurate statements and payment links.
- Ask for prompt settlement under the agreed credit terms.
- Avoid unfair or inconsistent collection practices that may harm relationships.
The business can contact overdue customers with statements and a clear request for payment under agreed terms. It should keep communication accurate and consistent; aggressive or inconsistent collection may damage customer relationships or create disputes.
Look for these in your work
- Practical action
- Terms followed
- Relationship risk considered
A firm proposes postponing a machine purchase to cover a short cash gap. Explain one cash benefit and one cost to compare.
Give me a hint
Postponement avoids an immediate payment but may delay the machine's benefits.
Compare my reasoning
- Cash stays available for current obligations.
- The firm may lose output, quality or efficiency gains while waiting.
- Compare the near-term shortfall with the investment's expected benefit and urgency.
Postponing the purchase preserves cash for current bills. The firm should compare that benefit with delayed capacity or efficiency gains, and confirm whether the gap can be managed by another lower-cost temporary action.
Look for these in your work
- Cash benefit stated
- Investment opportunity cost stated
- Alternative considered
Common mistakes
- Treating a negative forecast as proof of insolvency
- Delaying supplier payment without agreement
- Choosing a long-term response for a short timing gap without comparing cost
What can you explain now?
Which is a possible short-term response to a cash-flow problem?
Compare with the explanation
Ask customers to pay more quickly
This can bring receipts forward.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Name two actions a business might take to address a short-term cash-flow problem and one risk of each.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.