Cash Flow Crunch at the Pop-Up Café
Mira runs a pop-up café at a weekend market. She has $4,200 in the bank and owes a $3,000 supplier invoice due in 10 days. Weekend takings average $1,800, deposited the following Tuesday. She has just been offered a one-off Saturday catering job worth $2,500, but it requires $900 of ingredients bought and paid for this week, and it would mean closing her market stall that Saturday (losing the usual $1,800). Her supplier has offered a 2% early-payment discount if she pays within 3 days, or she can defer the invoice by two weeks for a $150 fee.
1. Calculate Mira's cash position over the next 10 days if she accepts the catering job and takes the early-payment discount. Is she able to meet the supplier invoice, and what is the margin?
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Cash available: $4,200 opening.
Outflows before invoice: $900 ingredients + $2,940 discounted invoice (98% of $3,000) = $3,840.
Inflows: The catering job pays $2,500 - but when? The prompt does not specify payment timing, so state the assumption. If paid on the day, add $2,500. The usual $1,800 market takings are lost because the stall closes.
Net position (catering paid promptly, discount taken): $4,200 − $3,840 + $2,500 = $2,860.
Net position (catering paid late, discount taken): $4,200 − $3,840 = $360 - still solvent but very tight.
Conclusion: She can meet the invoice in both scenarios provided the catering payment lands within the window. The margin ranges from $360 to $2,860. The judgement call is that the job is only safe if payment terms are confirmed in writing before she commits to the $900 ingredient spend.
2. Compare accepting the catering job against keeping the market stall and deferring the invoice. Which option leaves Mira financially stronger, and what non-financial factors should influence her decision?
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Option A - catering + discount: Net cash gain = $2,500 − $900 − $60 discount saving = +$1,540 relative to doing nothing, but she loses the $1,800 stall income, so the true opportunity cost is $1,800. Effective gain = $2,500 − $900 − $1,800 = −$200 plus the $60 discount = −$140.
Option B - keep stall + defer invoice: She keeps $1,800 takings and pays the $150 deferral fee. Net = $1,800 − $150 = +$1,650.
Financial verdict: Option B is stronger by roughly $1,790 once the lost stall income is counted. The catering job only looks attractive if you ignore the $1,800 she forgoes.
Non-financial factors: the catering client may become a repeat corporate customer; closing the stall may upset regulars and the market operator (possible loss of her pitch); the $900 ingredient outlay is a sunk risk if the client cancels; deferring the invoice builds a reputation for slow payment with the supplier. A strong answer weighs the relationship and reputational costs, not just the arithmetic.