To counter this dependence, Lawrence Sports should create a three to six-month grace period before the price changes go into effect and increase marketing efforts to other retailers during this period. This will give the Lawrence Sports advance notice of any problems that might arise in implementing this plan as well as reducing its exposure to the Mayo Stores retail outlets, allowing for greater latitude in capital management.
In order to determine whether the new working capital management plan is working for the company, certain performance measures will be put into place. A dedicated individual in the accounts receivable department can track the changes in revenue that are created by the plan will be able to determine how the incoming cash flow compares to that which existed prior to the implementation of the working capital management plan, forming an effective means of measuring the success of this plan (Gass 2005). An increase in long-term profitability is not an expected result of the implementation of this plan, but operating capital should noticeably increase within a month after the changes take effect.
Taking all of the above into account, the implementation of the recommended changes to the working capital management plan at Lawrence Sports will take place as follows: the necessary amount of additional charges for payment-after-delivery will be calculated, and assessed as a percentage of the total amount left unpaid at the time of delivery. Mayo Stores and other retail customers of Lawrence Sports will be apprised of the impending changes, with a three to six-month period intervening between notification of the changes and their taking effect. Once the changes take effect, the point person in accounts receivable will monitor the change in cash flow resulting from increased prices for payment-after-delivery and from the expected increase in payment-upon-delivery that will be the result of the effective discounted rate of such payments. Ongoing assessment of the plan will potentially lead to adjustments to create the most favorable position for Lawrence Sports and its customers.
Cash Conversion Cycle
For a manufacturing firm such as Lawrence Sports, operating capital...
Lawrence Sports Working Capital Management Lawrence Sports is a manufacturer of sporting goods facing a fiscal dilemma in the early spring of 2011. Between the months of March and April, the company would experience an impasse within the context of its Current Cash Conversion Cycle. Here, an improved strategy for working capital management is called for. First, with respect to the cash conversion cycle, Lawrence Sports largely draws is working capital from
This would considerably simplify matters for Lawrence Sports. Such financing methods are best suited for alimenting short-term objectives. The reason behind implementing an electronic payments system relies on the fact that the company would count on receiving and making timely payments. This alternative is also designed for simplifying the cash flow. Preparing and effective cash budget is another alternative solution that must be taken into consideration by the company's managers. The
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