Problem Solution - Murray Leather Works

Running head: PROBLEM SOLUTION

Problem Solution Paper – Murray Leatherworks

University of Phoenix

Introduction

Lawrence Sports’ principal customer is unable to make its scheduled payment on a past due account. In fact, they may not be able to pay for another two or three weeks. Based on projected cash flow over the next months, the expected shortfall of incoming cash from its accounts receivable jeopardizes Lawrence Sports’ ability to pay its own bills on time. This in turn will have a significant impact upon one of Lawrence's major suppliers, Murray Leather Works, a small company that is totally dependent upon Lawrence for its business survival. In order to resolve this issue, the pros and cons of three alternative solutions will be examined and one of them will be recommended as the optimal solution.

Alternative Solutions

1) Develop cash flow management policy that comprises of monthly cash budget projections.

2) Improve credit and collections management.

3) Use third party factoring.

Lawrence Sports’ cash reserves and credit limits are not meeting the cash flow needs of the business. A monthly budget would provide management with a better picture of the working capital requirements. The budget should comprise of cash inflows, a collection schedule, cash outflows, and various expenses. Reviewing the collection schedule based on historical data and keeping close contact with customers will help anticipate any delays in accounts receivable. Lawrence should also consider a monthly flexible cash reserve and credit limit.

The second alternative solution is centralization and automation of credit and collection functions. This method will help maintain a consistent working capital management policy across the company allowing the collections departments to more effectively manage delinquencies. In addition to improving collections, managing the borrowing from the bank will help curb cash lost to interest...