Lawrence Sports Working Capital Policy Paper
The global marketplace requires companies continuously to improve in order to remain competitive. One of the essential tools for improvement is the ability to establish optimal working capital strategies and practices. Working capital practices include the management and delicate balance of accounts receivables, accounts payables, inventory levels, sources of short term borrowing and cash flows. The working capital manager at Lawrence Sports finds the company in an intricate position following defaults and delays on receivables from, the Mayo Stores that have directly affected their working capital practices, namely debt payment. The result for such delinquent behavior on the part of Mayo Stores: a corresponding cash flow deficit forced on Lawrence Sports which has forced the company to use their line of credit with high interest payments to stay afloat.
Companies should develop working capital strategies in preparation for long-term opportunities. These strategies may include granting credit, credit policies, collection policies, and financing trade credit. To think of the decision to grant credit in terms of carrying cost and opportunity costs, (Ross-Westfield-Jaffee, 2005, ch.28, p. 789). A firm can either grant or refuse credit depending on which results with the best NPV. A collection policy is dealing with past accounts, (Ross-Westfield-Jaffee, 2005, ch.28, p. 795). Companies must ensure they have enough money from receivables to pay their bills. Firm’s will extend trade credit if it has a comparative advantage in doing so, (Ross-Westfield-Jaffee, 2005, ch.28, p. 795). A company determines the level of each of these areas depending on the distinct situation. This paper will show how a good worki ...