Dun and Bradstreet have reported that nearly half of all Australian businesses operated with a negative cash flow over recent financial years. This figure is worrying as 80% of business failures are related to cash flow pressures rather than poor sales. Many firms with large profits fail to manage their cash payments or collect enough cash in a timely manner - resulting in negative net cash flow. This situation occurs despite businesses making sales and recording profits. If credit and other forms of finance were to become scarce' then it becomes more likely that businesses will fail. Slow customer payments to suppliers - a persistent culture in Australian businesses - means that payment terms have risen to 54 days on average - making cash flow even worse for some firms. 10 marks, 20 minutes 1. Suggest two reasons why many Australian businesses have been operating with a negative cash flow despite being profitable. 2. Explain how the following might affect Australian businesses: a. credit and other forms of finance 'becoming scarce' b. further delays by customers in paying suppliers. [4] [3] [3]