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...
643). Lawrence Sports has been operating long enough and with enough profitability that it should be able to achieve an efficient enough cash conversion cycle to remain in operations without relying on external sources of credit, yet the lack of upfront payment from its major retail customer has led to this not being the case. By increasing the sheer amount of cash ultimately received from the sale of goods as well as incentivizing speedier payment for products delivered, the cash conversion cycle at Lawrence Sports will be made faster and more efficient, providing the company with a better platform on which to build profitability and continue its successful manufacturing operations.
Conclusion
The fact that Lawrence Sports receives only twenty percent of its payments up front has caused serious cash flow problems for the company. Implementing a plan of charging increased fees for payment-after-delivery will significantly address these issues. With this plan in place, Lawrence Sports can continue being an industry leader and grow to greater levels of profitability and success.
References
Bush, S. (2010). "Working capital loans and Plan-B contingencies." Accessed 21 October 2010. http://ezinearticles.com/?Working-Capital-Loans-and-Plan-B-Contingency-Financing&id=1373160
Emery, D., Finnerty, J., & Stowe, J. (2007). Corporate Financial Management (3rd ed.). New Jersey: Pearson-Prentice Hall.
Gass, D. (2005). "How to improve working capital management." Accessed 21 October 2010. http://www.articlesbase.com/management-articles/how-to-improve-working-capital-management-50163.htmlhttp://www.articlesbase.com/management-articles/how-to-improve-working-capital-management-50163.html
University of Phoenix. (2009). Scenario: Lawrence Sports Simulation. Accessed 21 October 2010. https://ecampus.phoenix.edu/classroom/ic/classroom.aspx
