Overtrading indicators

Latest advice and support straight to your inbox SIGN UP. Overtrading takes place when a business accepts work and tries to complete it, but finds that fulfilment requires greater resources - ie more people, working capital or net assets - than are available. This is often caused by unforeseen events such as when manufacture or delivery take longer than anticipated, resulting in cashflow being impaired.

Working capital is the difference between current assets and current liabilities. Overtrading is a common problem, and it often happens to recent start-ups and rapidly expanding businesses.

Cash often has to leave the business before more cash comes into it. For example, wages and salaries are usually payable weekly or monthly, and there may be other expenses that need to be met promptly, such as telephone bills and rent.

Although you may pay suppliers on credit, your customers may also pay you on credit. It doesn't take much to upset the balance. It is also possible to run out of cash, even if your customers pay cash and do not have credit accounts. For example, you may have to pay suppliers quickly, perhaps even in advance, or you may have to hold stock for a long time. What matters is the amount of working capital and the timing of cash coming in and going out.

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Common signs of over Trading

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Overtrading

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Home Finance Financial planning and accounts. Avoid the problems of overtrading What is overtrading Overtrading takes place when a business accepts work and tries to complete it, but finds that fulfilment requires greater resources - ie more people, working capital or net assets - than are available.

Actions Download cashflow and overtrading guidance from the Chartered Institute of Management Accountants PDF, K learndirect financial management online courses. Also on this site Identify potential cashflow problems Ensure customers pay you on time Balance sheets. Sign up for FREE business updates from nibusinessinfo. Consent I am happy to receive information from Invest NI about products and services that could help me start or grow my business.