Financial Management

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Financial Management

Financial Management

Financial Reporting

Financial reporting is very important for every organization. It helps in keeping the finances of the company in line with the goals of the organization and keeps a check where the company's funds are going. Financial management is a fundamental aspect as it is responsible for the forecasting, budgeting and implementation of the financial plans. One aspect of poor financial management is poor credit control. Managers who are incapable of handling the company's finances cause poor credit control in the organization. Major consequences of poor credit control are that the company loses its funds, because now the money that has been lent has turned into bad debt (Madura, 2009, pp. 20).

Poor credit control can be reduced by preparing stringent credit terms. The rules and policies should be set forth by the lender very clearly so that it does not face any difficulty in future. Dates and the payment methods should be made clear to the borrower so that he pays back on the right time in the right way. The company should have a strong invoicing system so that it keeps a check on the inflow and outflow of funds. The method of debt collection should be transparent.

Repayment has a direct impact on the cash flows. When a company extends credit, it has a complete cycle prepared, as to when the repayment will be made and where that money will be used; therefore, delay in repayment causes massive loss to the company. Apart from managing their finances, the company should also look for ways, to cut costs (Gibson, 2010, pp. 36). Cutting down costs is a challenging task. It is easy to cut variable costs than fixed costs. Profits can be increased by cutting down costs and expenditures. A company is also affected by recession and sometimes causes a company to down size which has a, direct impact on its profitability.

Ways of Raising Funds

There are many ways a company can raise funds for its short term and long term needs. A medium sized company can use the overdraft facility from the bank with which it has beneficial relations. The company should have a clean credit history to avail the overdraft facility. The company can also take short term loans which will help them in meeting their short term loans. Trade credit is another way of obtaining a short term loan. The company can negotiate with suppliers to receive the materials, but delay the payment. Financing for long term needs includes obtaining loans from banks for a longer duration i.e. debt financing. Another way of financing for long term includes raising funds through equity financing (Bull, 2005, pp 10). The company floats shares of its companies in the market. People buy those shares to earn a substantial profit on them, and the company in turn receives funds that it needs for operations.

Equity financing is expensive than debt financing, but the long term costs associated with it are much more than debt financing and it also has a long ...
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