Lawrence Sports Simulation - Essay Example

Policy Recommendation Lawrence Sports has created a strategic alliance with Central Bank with intent to receive credit facilities in times of cash deficit. According to this policy, money is automatically transferred from the Central Bank to Lawrence Sports’ account whenever the company experiences a cash deficit. Currently, the company’s line of credit with Central Bank has reached its limit, $1.2 million (cited in University of Phoenix, n.d). Here, the company has to take some strategic decisions to continue its business effectively.

The firm’s current difficulties are mainly due to Mayo’s default on outstanding payments for the weeks of March 17-23 and March 24-30. However, it must be noted that Mayo is the Lawrence’s principal customer and hence Lawrence Sports should not take a tough stance on Mayo’s outstanding payments. It is advisable for the company to allow Mayo an extra week for paying 80% of the outstanding payments. Evidently Gartner is the potential supplier of Lawrence Sports as this vendor assists the company to meet its 70% of the raw materials needs.

However, Lawrence has a restricted bargaining power over Gartner since Lawrence Sports is not a key customer for Gartner. Hence, it is recommendable for Lawrence to distribute 60% of its outstanding payments for the week of March 24-30 over the weeks of March 31-April 6 and April 7-13; and subsequently, continue the payment mechanism as before. Lawrence’s vendor relationships head Ann Wu opines that Murray is the more flexible vendor of the company although it is not the major one. However, Lawrence should not stretch payments indefinitely to this company because such a condition would put this company into great financial troubles.

Therefore, it is advisable for the organization to pay 15% on purchase, 40% in the next week, and the remaining 45% in the second week from the week of March 31- April 6. Lawrence Sports may continue to follow this strategy for planning the subsequent weeks. To be specific, it is recommendable for Lawrence Sports to follow a moderate working capital policy. According to Brigham & Daves (2007, p.725), a moderate policy is the one between relaxed working capital policy and restricted working capital policy extremes; and under a moderate working capital policy, an organization neither adopts a liberal credit approach nor a restricted credit approach.

However, the moderate policy may not be beneficial for Lawrence to improve its financial position quickly as this policy gives more focus to customer and vendor relationships. Hence, the organization can only gradually improve its debt levels and minimize interest burden under this policy. This policy may prevent Lawrence from fastening its market growth because the firm does not promote risky investments under this moderate policy. As Correia, Flynn, Uliana & Wormald (2012, pp.11.5-11.6) point out, the organization allows its customers to maintain payment dues to a fixed level and does not take long time to pay dues to its vendors.

In the view of Periasamy (2009, pp.19.12-19.13), a major risk associated with this policy is that Lawrence cannot quickly realize dues from its customers even if it is badly in need of money. As the organization provides its customers with a fair period of time to pay dues, it cannot insist them to pay the dues instantly. Hence, Lawrence Sports may struggle to raise funds in times of unforeseen contingencies. As compared to a relaxed working c