Lawrence Sports is a $20 million revenue company that manufacturers and distributes sports equipment. The company's weekly cash budgeting is a balancing act between accounts receivable receipts and short-term financing. Typically this type of budget would not present many problems but in the case of Lawrence Sports, their working capital strategies are not optimized to maintain a positive cash budget. This paper addresses Lawrence Sports use of a cash budget to optimize their working capital strategies. The paper evaluates Lawrence Sports current working capital policies, suggests areas of improvement and provides metrics that the company can use to evaluate the policies effectiveness. Finally, the paper will analyze the ethical implications of the working capital policies to ensure Lawrence Sports is addressing the interests of all stakeholders. The paper begins with an overview of working capital management and the best practices or policies a company can institute to optimize working capital.
Working Capital PolicyWorking Capital ManagementWorking capital management is the management of a company's finances from the beginning of the cash conversion cycle to the end. Working capital is the cash needed to run the day-to-day operations. The implementation of best practices helps to ensure a company's working capital remains a positive cash flow. The following are best practices as defined by REL Consult a company that specializes in working capital management and ensuring companies have the most efficient cash conversion cycle that is custom fit to their needs.
Ã¢ÂÂ¢"Credit policies should be aligned with the company's strategic goals.
Ã¢ÂÂ¢Payment terms should be minimized and adjusted to customer risk.
Ã¢ÂÂ¢Billing processes should be streamlines and void of duplicity.
Ã¢ÂÂ¢Collection procedures need to be proactive not reactive.
Ã¢ÂÂ¢Build relationship with large revenue customers.
Ã¢ÂÂ¢Dispute-resolution policies should be defined and handled efficiently.
Ã¢ÂÂ¢Review recurring disputes and find the root cause so...