Working Capital Management Simulation - Essay Example

Lawrence Sports could also charge their sales team to increase sales efficiency.  Currently, Mayo is the leading consumer for Lawrence Sports causing a large amount of capital to be missing if payments are delinquent.  If Lawrence Sports offer an incentive, like a bonus, to encourage their sales team to push out more sales to other consumers, then this would also be an option to increase working capital.         Next, consider Lawrence Sports’ payments to their suppliers.

  Delayed payments may cause a supply shortage.  One alternative to keep from delaying payments would be to apply for a consolidation loan that hopefully has a better interest rate than the line of credit currently being used.  If the right loan can be found, the company can avoid late payments on the line of credit by paying it in full with the consolidation loan.  In turn, the consolidation loan can offer the company smaller payments over a longer period of time than the line of credit.

  There are risks to this alternative.  Taking on to much debt could ultimately lead to bankruptcy if payments can’t be made.  However, by proper debt management, this plan can keep the suppliers happy because the company hasn’t become delinquent in their own payments.         In the simulation, Lawrence Sports’ need to improve its cash flow may lead to delaying payment to Murray who is very dependent on Lawrence Sports.  This delay in payment could in turn cause Murray to go out of business because the company relies on Lawrence Sports’ business.

  Is it ethical for Lawrence Sports to put a company out of business to improve their own business?  It is not ethical to put a company out of business by delaying payments if payments could be easily afforded.  However, Lawrence Sports is having difficulty making payments due to a financial problem with its major customer.  If Lawrence Sports chooses to make payments on time at the expense of their own welfare, then there is a possibility that they may go out of business themselves.