Overtrading

Rapid growth can require more inventory and receivables before cash is collected, while wages and suppliers still need payment. If funding and working-capital management do not keep pace, the business may overtrade. Symptoms can include rising overdrafts, stretched supplier payments and deteriorating liquidity, but no single ratio proves the diagnosis. Remedies may involve additional suitable long-term finance, better collection and inventory management, renegotiated terms or a slower pace of expansion. Overtrading differs from making losses, although both can cause cash shortages and may occur together.