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Problem Solution: Lawrence Sports Inc.
Lawrence Sports (Lawrence) has encountered issues with maintaining enough cash flow to operate properly and is on the verge of financial destruction. In order improve their current working capital management and cash budget, Lawrence must implement approaches that will allow them to have capital available whenever needed while optimizing its resources. Several processes are available in which Lawrence can use to maximize liquidity and ensure cash optimization allowing them to improve their current financial situation. This paper will discuss solutions to help Lawrence develop a working capital policy, a cash budget to optimize their working capital, and metrics to monitor working capital management.
Situation Analysis
Issue and Opportunity Identification
Lawrence is using short-term financing in the form of bank loans to cover inventory costs due to debts which have occurred as a cyclic effect of Mayo defaulting on loans over three consecutive months. Lawrence needs to establish a collection policy to prevent future debt loss and collect Mayo’s current debt, future debt, and arrears. “Companies must maintain established credit limits and collection periods in order to minimize bad debt losses. In general, operating agencies should establish credit limits and collection periods consistent with trade practice for that type of receivable” (Author unknown, n.d., p 2). Mayo’s outstanding accounts receivables has resulted in Lawrence experiencing an increasing deficit and difficulties paying Gartner and Murray. Lawrence’s use of short-term financing to raise capital from sales to pay their accounts receivables and making smaller payments to ...