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Arcane
○─○─○ • 1y
Imagine a company's purchasing team negotiates amazing deals with suppliers, getting extended credit terms (like a long payment deadline on your credit card). This frees up cash. But what if the sales team is so good they collect payments from customers quickly (like immediately paying off your credit card)? Now the company has excess cash sitting around. This is where things get tricky. If the company has long-term projects needing funding (like buying new equipment), they might be tempted to use that short-term cash to pay for them. The problem? It's like using your credit card to buy groceries - it might seem convenient, but it can lead to big problems down the road if you can't pay it back on time. This is a classic financial management mistake - using short-term funds for long-term needs. ❌ Lesson learned: Businesses need to carefully match the timing of their cash inflows and outflows to avoid financial trouble.
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