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Hello John
Please tell me if my understanding of over trading is correct as shown below:
From what I’ve been reading, over trading is basically a cash flow problem which may come about due to the length of the cash operating cycle. Therefore if a supplier requires payment upfront but customers are given a credit period and the business continually expands, the cash flow problem would worsen thereby causing over trading problems. However, for a supermarket if the supplier gives a credit period there should not be an over trading problem since the cash is paid by customers at point of sale.Certainly there is much much less likely to be a problem for the reasons you state. However there could still be a problem as a result of holding higher inventories if they do not manage to sell them quickly enough and/or if they lose control due to keeping higher inventories and not (for example) having the additional staff necessary to keep control of it.
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