APT Initiatives
APT Business & Economics Resources
Minimising Workloads, Maximising Performance
Established in 1999

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A situation that occurs when a firm expands its order book without generating or organising sufficient cash in time to fund the expansion and meet debts as they fall due. As the firm expands its order book, it finances additional stock by trade credit and a bank overdraft. If creditors demand early payment and debtors delay payment, then the business may be declared bankrupt and / or forced into liquidation by its creditors. Symptoms of overtrading start to appear before it gets critical. The symptoms are an increase in debtors figure, withholding payment to supplies, and cash exhaustion. When firms display obvious signs of overtrading, they find that creditors are unwilling to offer further loans, thus making it difficult to purchase new equipment and stocks of raw materials necessary to meet increased demand.

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