Cash Flow Management in the Lawrence Simulation Essay

Cash Flow Management in the Lawrence Simulation - Essay Example It is in this situation that crisis has struck. Mayo has defaulted on payments for the weeks of 17 through 30 March. Further news is that Mayo will not be paying anything until the week of 14 April. Lawrence must negotiate with Mayo, Gartner, and Murray in order to speed up payments from Mayo and possibly further defer payments to Gartner and Murray. Borrowing from the bank is to be managed to minimize the outstanding balance and subsequent interest expense. Analysis: Lawrence faces two problems, a short-term cash-flow problem, and a larger and more significant strategic problem involving an unhealthy dependence on a single customer and lack of diversity amongst suppliers. We are tasked with the short-term cash flow problem at hand. If Mayo is allowed to proceed with delays of payment until the week of 14 April, the company will suffer a cash-flow deficit of up to $ 411,000 in excess of the $1.2 million line of credit for the period of 31 March through 13 April. Based on the existing payment schedule, there are no savings in interest expense to be gained by forcing Murray to accept delays in payments. If Lawrence chooses not to attempt a negotiation with Gardner for additional time to meet outstanding payments, the interest expense on borrowing will be $3,821 more than if Lawrence attempts to push Gartner to accept further delays in payment, regardless of the terms offered. Is the relationship with Gartner worth $3,821? How much would Lawrence spend to develop a new supplier?