Lawrence Simulation Fin561

Lawrence Sports Simulation

Working Capital Policy
Improving accounts receivable performance would be the first alternative to improve cash flow and working capital for LSG.   Using different credit terms and policy can increase internal cash flow, working capital, decrease supplier payables, and the borrowing line of credit for operational cost.   Also by implementing new credit terms and policy Mayo Store payments can be made in a timely manner. Diversifying LSG customer base would be the second alternative.   The majority of total sales come from Mayo Stores instead of LSG.   This puts Mayo Stores in a better position to pay payables to LSG at its discretion.   By receiving minimum accounts payable payments to LSG supplier’s funds has to be borrowed to meet their basic requirements for the accounts payable. Adjusting the inventory policy to a Just-In-Time method would be the third alternative.   This method would decrease LSG inventory carrying cost for inactive inventory.
Risk Association Evaluation
When developing a contingency plan, you must first look at what is required to keep the financials where they need to be.   The account receivables of LSG are not functioning where they should be and the credit line back-up plan is failing.   The first contingency that should be implemented is when the supplier is late on payments; there should be additional consequence if payments are not received in time.   LSG will have to be careful not to hurt the relationship with Mayo, but setting new guidelines will allow Mayo to understand they must make payments on time.   If Mayo fails to make payments within the guidelines more than 2 consecutive terms, LSG will need to make it a requirement for full payment up front.   Adding additional investors will help with the cash flow decrease.   Allowing for a fund to protect the working capital of the company is important and will decrease the amount of money borrowed from the bank at a higher interest rate.