Over trading is a situation where there is Sharpe increase in sales
Reasons for over trading
The overtrading may represent the real growth in business which is accordingly reflected in the sales increase in revenue.The overtrading may result due to flexible or more generous credit policy or allowing higher discount to the customer.
Indications of Over trading
The following are common indication of over trading
- Sharpe increase in receivables
- Sharp increase in stock levels
- Share increase in Sales/Revenue
- Enough funds not available to support operations
- Over utilization of fixed assets
- Bad debts
- Over reliance on short tem financing
- Sufficient funds stuck up in high level of stock
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