Lawrence Sports needs to review its working capital policy and come up with a better way to conduct its day to day business. Within this paper 3 aspects will be discussed: Cash balance requirements including cash reserves needed for long term opportunities that may arise, supplier negotiation strategy for terms of payment that balances the costs to Lawrence Sports and their cash requirements, and short term financing strategy to ensure availability of an adequate line of credit while minimizing the cost of that credit. Once this has been explained I will give my recommendation as how to take care of the issues plaguing Lawrence Sports.
Working Capital Policy
Cash balance requirements including cash reserves needed for long term opportunities that may arise.
Cash is something that every company must have. Cash can have many different uses within any company. In the case of Lawrence it could help save the company money by not have to use short term financing to help cover Mayo’s short fall in payments. Cash can be used to finance future endeavors for the company such as advertising, securing properties, or for sustaining business in times of need. Lawrence should have discussed what it would require of Mayo before it ever entered into business with the company. All companies have good quarters and bad quarters, either way Mayo should be able to pay its debts as promised. A company should never put its supplier into a bad situation such as the one Mayo put Lawrence in. The supplier, Lawrence, had been put into an uncomfortable situation with its other customers because of the payment problems of Mayo.
As with any business, Lawrence Sports needs to have a “Plan B” for emergencies like the one with Mayo and Gartner. A cash reserve is money that has been put into a separate account for use in payment of a possible liability or emergency. Short term financing is a great tool to use, but why use money that the company... [continues]
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