Lawrence_Sports

Lawrence Sports’ working capital policies Change and adoption of policies related to working capital can affect Lawrence Sports’ sales to Mayo and the relationships with Gartner and Murray. Therefore the decision, such as collecting all the outstanding from Mayo, or continuing an existing arrangement with Gartner must be taken with great caution. In a different angle of vision, Lawrence Sports has the imperative to identify an equilibrium point, on which sufficient cash inflows and long-term financial goals are realizable. For efficient credit management policies at Lawrence Sports, management should “ensure that all amounts due are collected according to the agreed payment terms and that the most efficient methods of payment are used” (Paul Stevenson 2005, p. 8.) Strong policies should consider the factors such as whether, Mayo is a local partner, or Murray operates internationally. Customer’s oriented credit policy: Mayo Within the week March 17 to 27 April, Lawrence Sports sees an increasing average of its cash balance, and a minimal amount of borrowing money from lenders. The decision taken by credit managers to give Mayo three additional weeks to 80% of sales was solely based solely on the idea to maintain good quality of account receivable. In the prospect of dealing with current and future additional customers, Lawrence Sports can adopt a policy that states: additional three weeks are guaranteed to late payments on account receivable, with a minimum of 80% of the amount due. Suppliers’ oriented credit policy: Gartner and Murray For its account payables Lawrence Sports should pay to Gartner 40% on purchase, 20% in two weeks, and the remaining 40% in the week after. This decision allows the firm to maintain closely a zero balance on its account payable, which is an efficient financial strategy. The same differed payments are advantageous with Murray, 15% payable on purchase, 40% in the next week, and the remaining 45% in the week after. The policy on supplier’s credit such as, purchase balances to be paid in three weeks on three fractions, will lead Lawrence Sports to remain competitive. Credit policy on international cash balances If Lawrence Sports outsourced a portion of its business, or possess few stores located within other countries, additional measure should be taken to ensure the effectiveness of cash management. Financial measure, such as precautionary cash balances will help Lawrence Sports to keep “a precautionary cash balance to cover unexpected transactions during the budget period”(p.474….) Adopting a precautionary cash balance benefits Lawrence Sports in ways of dealing with effect of exchange rate, differential income taxes, and regulations related to transfer prices. To create a policy related to international cash balances, Lawrence Sports should integrate the Netting system on its daily financial operations involving international transaction. References INTERNATIONAL FINANCIAL MANAGEMENT Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Credit management policy, by Paul Stevenson Credit Management, ISSN 0265-2099, 2005, p. 8