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Working Capital Management - Essay Example
In the simulation, Lawrence Sports is a $20 million company that manufactures protective sports gear of various types. Mayo is Lawrence Sports main customer contributing 95% of sales to the company but has become delinquent on payments jeopardizing the stability of Lawrence Sports…
An analysis of this situation will answer the following question:
There are many other alternatives that were not considered in the simulation for the collection and payment policies with Lawrence Sports business partners. The simulation suggest to give Mayo another week to pay their delinquent account, collect all the outstanding amounts from Mayo immediately, or collect the amounts at the time Mayo is willing to pay the delinquent payments. Payment is needed immediately for Lawrence Sports to continue business successfully. Another alternative other then the suggested plans is to offer Mayo to pay half of the delinquent amounts immediately while offering a small discount in interest charges if the offer is accepted. The discount would increase the desirability of the option while allowing for at least a partial immediate payment to increasing the working capital of the company. Once this offer is accepted, a reasonable time frame for the majority of the delinquent payments should be negotiated. Lawrence Sports could also charge their sales team to increase sales efficiency. Currently Mayo is the leading consumer for Lawrence Sports causing a large amount of capital to be missing if payments are delinquent. ...