Contingencies for the Recommendation

Contingencies for the RecommendationThe contingencies for this recommendation will prevent Lawrence Sports from accumulating too much short-term debt in the future. Since Mayo is Lawrence Sports leading customer negotiating payment terms with them will not only keep the customer happy but also allow the company to receive the payments before the due date and possibly pay off any outstanding balances owed. Because of past payment issues with Mayo, Murray and Gartner renegotiating payment terms can be a method that Lawrence could use to slow their cash going out but could greatly improve their cash flow. Using this method will be a strategic lever creating a competitive advantage for the company. Extending terms of credit would depend upon the business relationships with Mayo, Murray and Gartner both past and present and their credit payment history. The company must be diligent in tracking and acting on any late payments or failure to pay trends by its customers and suppliers to prevent further risks that would slow or even stop cash flow.
An effective cash flow management would be a strategic advantage for Lawrence Sports over its customers and suppliers, but they must use their working capital wisely. According to Emery, Finnerty and Stowe, 2007, p. 639, ???Working capital consists of a company??™s current assets minus its current liabilities. Current assets include cash, short-term securities, accounts receivable, and inventories. Current liabilities include short-term borrowing, accounts payable and taxes payable.???
Lawrence Sports must implement a contingency plan that will reduce the risks of losses due to customers and suppliers failing to uphold their obligation in terms of payment for the products they provide. This contingency plan will reduce some of the unforeseen events that may occur and will be a backup plan if the company is affected by an economic downturn. A major factor of this contingency plan is knowing how much cash the company has available to continue day-to-day operations. Too much cash available would not be beneficial to the company as this cash could be used for further investing and maximizing profits. Too little cash on hand could be detrimental to the company and result in failure to make timely payment obligations to suppliers thus adding further hardship on all parties involved.
Emery, D., Finnerty, J. & Stowe, J., (2007). Corporate Financial Management (3rd ed.). New Jersey: Pearson-Prentice Hall.