Working Capital Lawrence Sports
Working Capital Management Concepts Worksheet
University of Phoenix
Working Capital Management Concepts Worksheet
Concept Application of Concept in the Simulation Reference to Concept in Reading
Account Payable terms
Terms of Sale
Cash Discounts
The working capitol management simulation for Lawrence Sports had terms of sale set up with Mayo (Lawrence’s principle customer) of 20% collection on sale and the balance of 80% the following week. Starting the week of March 31st Mayo has defaulted on the 80% due Lawrence for the weeks of March 17 and March 24. In addition to this default Mayo has informed the company that no payments will be made until the week of April 14th. The newly appointed Finance Manger will need to renegotiate the existing terms of sales with Mayo based on the fact that deferring payment until April 14th is unacceptable. The Finance Manager will have to come to new terms on existing money owed with Mayo to keep cash inflow going while minimizing the use of short term financing. Due to the cash crunch the Finance Manger also needs to manage cash outflow (terms of sales) to Gartner and Murray. Once the issues of current payments are address the Finance Manager should negotiate with Mayo new terms of sales in which they pay a larger percentage at the point of sale. On the other side of the coin Lawrence should also negotiate with Gartner and Murray terms of sales in which Lawrence pays a smaller percentage at the point of sale. In addition to addressing Terms of Sales Lawrence should encourage it’s partners to consider cash discounts and early payment discounts.
Terms of sale differ for “firms selling consumer durables may allow the buyer a month to pay,
while those selling perishable goods, such as cheese or fresh fruit, typically demand
payment in a week. Similarly, a seller may allow more extended payment if
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