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Submitted by Jeanni23 on August 9, 2007
Category: Business
Words: 3756 | Pages: 16
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Problem Solution: Lawrence Sports Inc.
XXX
University of Phoenix
MBA 550
Resource Optimization
XXX
August 9, 2007
Problem Solution: Lawrence Sports Inc.
Lawrence Sports is a $20 million revenue company that manufactures and distributes equipment and protective gear for baseball, football, basketball, and volleyball. With a world-leading retailer as its major customer and two companies as its material source. Lawrence Sports not only had an established credit policy of its own portrayed by the relationships with its vendors, but Lawrence’s major example involving credit policy was the established line of credit at Central Bank. In order to maintain its corporate policy of having accessible minimum cash balance of $50K available, Lawrence had to utilize its line of credit at the bank. However Central’s credit policy stated that Lawrence’s established borrowing limit was $1.2 million.
Lawrence heavily relied upon the use of cash during the low peak times of cash conversion which usually occurred in late March. Due to unforeseen circumstances, Lawrence had to utilize the event of “stretching its payables” to its vendors during the last two weekly periods of March in order to meet other corporate expense obligations. At times when issues arrived with the vendors themselves, the cycle also affected Lawrence when caused the manufacturing company to adjust during the difficult time period. Lawrence especially had to utilize the concept of stretching its payables when the company maxed out its line of credit with the bank. (Simulation: Working Capital Management)
Lawrence experienced both positive and negative effects of accounts payable terms on their cash conversion cycle. When the cash flow was slow, Lawrence had to negotiate with its vendors to delay its accounts payable in order to generate the needed cash to operate. While maintaining vendor relations is an...
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