Free Capital Policies Essay Sample
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There are three working capital policies that can be implemented. This is when evaluating recommendations on the type of policies to implement in order to reduce future difficulties. One of the policies is adjusting the financial plan. This is through employing maturity matching approach to hedge the interest rate risks. Lawrence Sporting Goods (LSG) recurrently experiences financial problems within the organization. In order to take this problem into consideration, LDS can consider having Mayo Prepay 25% of the order up to front and the remaining percentage can be due to delivery of items purchased. This is one of the methods the company can employ in order to reduce the fiscal burden of Mayo from that of LSG. This plan can streamline the products of LSG and reduce their financial problems.
Another alternative is to finance the operations of LSG through modifying the existence of the Trade Credit Agreement with Murray. This can be achieved through employing conservative approach of maintaining good business relationships. The LSG presently has an outstanding payment and credit history with Murray and Gardener. In order to improve this, the LSG would be required to negotiate for the decrease of about 10%. This can be done after one week the company the company could receive the finished products. The rest of 90% payment would be done after two weeks when they have received a receipt for products. For instance, the company must negotiate with the suppliers who will repay the loan burden as well as alleviates the cash deficit.
Lastly, the company may have numerous rigid working capital policies in effect. Thus, the company may use of aggressive approach. The company will use this approach in stretching their payments for a particular period. Additionally, combining the approach with a well diversified portfolio would enable the company to perform better. Since the working capital policies would be paid, the Lawrence sports would use accounts receivable as collateral for traditional loan. Thus, banks can measure the accounts receivable as low as 50 per cent of their collateral values for a traditional loan.