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Submitted by atcashwell on March 15, 2007
Category: Business
Words: 3259 | Pages: 14
Views: 1451
Popularity Rank: 2,280
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Problem Solution: Lawrence Sports Inc.
Lawrence Sports, a manufacturer of sports equipment, is having cash flow problems. On one hand it has obligations to pay its suppliers, but on the other hand it is expecting receivables from a customer that is unable to pay in a timely manner. On the surface, this may seem like a small problem, but in reality one has to ask, “how did this happen?” Obviously, cash outflows are exceeding cash inflows, but again, how could this happen in a structured, well-organized company?
Actually, cash flow is often a problem in big, successful companies. However, a lack of effective working capital management can cause these shortfalls to occur. In the case of Lawrence Sports, outflows exceed inflows and the shortfall is being made up by a credit line that is maxed out. Not only is the credit line maxed out, but it carries with it an interest that fluctuates depending on the amount borrowed. This is proving very costly to Lawrence.
Situation Analysis
Issue and Opportunity Identification
Lawrence Sports has a number of issues that need addressing. However, if the company is able to make positive changes toward better working capital management the company can enjoy growth and prosperity. Lawrence needs to look at working capital management as an opportunity to better serve its stakeholders and improve its current economic standing.
At the present time, Lawrence is not effectively controlling the inflow and outflow of cash. The company is being very accommodating when it comes to its sole customer Mayo. On the other hand, Lawrence is being pressed heavily by it suppliers. Suppliers are adhering to their prospective credit policies and expect prompt payment from Lawrence. The problem arises when Lawrence tries to pay for the supplies it needs to furnish the finished product from Mayo. Mayo has pushed back the payment date meaning that Lawrence will not have the cash available to pay...
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