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Working capital management – Cash and funding strategies

1.2 Motives for holding cash

 transactions motive – to meet day-to-day expenses

 precautionary motive – to meet unplanned expenditure

 investment motive – to take advantage of investment opportunities

Failure to hold enough cash can lead to:

 loss of settlement discounts – not enough cash available to pay suppliers early

 loss of supplier goodwill – too many delayed payments can lead to issues

 poor industrial relations – from delay in workers being paid

 potential liquidation – if creditors bring company into administration for non-
payment

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