lawrence Sports

lawrence Sports

Running Head: LAWRENCE SPORTS BENCHMARKING

Lawrence Sports Benchmarking
Lawrence Sports is a manufacturer of sporting goods with a cash management issue. The inability to have enough cash on hand for upcoming expenses is creating a short-term financing nightmare preventing the company to grow. The constant challenge to get clients to pay on time and to delay payments to vendors is causing financial distress for the company. A goal of the finance department at Lawrence Sports is to change this cycle, create a positive cash flow and develop a working strategy where the company will no longer rely on short-term borrowing from the Central Bank.
Select working capital strategies to prepare for long-term opportunities
When a transaction is not paid immediately in cash, credit can be extended to a customer, creating an account receivable. On average, “about one-sixth of all the assets of industrial firms are in the form of accounts receivable,” (Ross, Westerfield, & Jaffe, 2004, p. 779). The company’s decision regarding accounts receivable takes into consideration the collection period as well as the total amount of credit sales. In the simulation, credit was granted, to Mayo by Lawrence Sports, allowing it a specific time frame to pay. Mayo is a significant customer with the account size anticipated to increase in near future, so a delay in collections should be viewed in light of its anticipated account size and the probability that the customer will pay, is it has in the past. Credit is typically granted, to an open account by sending an invoice to the customer, although larger orders with problems in collections often use an IOU or a promissory note. The decision on granting credit often involves assessment of credit risk, taking into account the net present value or the net cash flows. The cash conversion cycle policies of benchmarked Caterpillar and Dell shortened the cycle and factored in delayed revenues from granting credit, immediate costs of...