Essay About Irate Supplier And Current Assets

Grenville Transport and the Cash Conversion Cycle
Cash Conversion CycleRead the following case. The Working Capital portion of the Balance Sheet (Current Assets and Current Liabilities) for the company has been included at the end of the scenario.Follow the instructions and answer the questions at the end of the case.You will need to calculate three different Cash Conversion CyclesGrenville Transport and the Cash Conversion CycleHamel Sandhu, Purchasing Manager for the Maritime region of Grenville Transport, put down the phone. Another irate supplier had called him saying that the payment on his invoice was overdue, this time by 50 days. The supplier’s sales representative said that if it wasn’t paid immediately, Grenville’s purchase order would no longer be honored and Grenville would be out of lube and maintenance supplies. Hamel had had at least half a dozen calls like that in the past two weeks. The calls were from long time suppliers who had been cutting the company slack for months for invoices not being paid on time, but now they were tired of waiting for their money.Hamel had talked to his boss, Steve Lee, who, in turn, had talked to Accounting in Winnipeg where the head office was. The company Controller, who headed the Accounting department, told Lee to find a supplier who liked being paid in 60 days or to negotiate those terms with current suppliers, as 60 days on payables was now the company policy. When Lee asked why the policy had changed from 30 days, he was told 30 days tied up too much cash.Lee and Sandhu sat down to talk over the situation. It was clear that Accounting in Winnipeg would continue to pay late unless they came up with a reason that made the new policy look like a poor business decision. To Sandhu and Lee, losing trustworthy, reliable long-standing suppliers seemed to be as bad a business decision as you could make, but it didn’t seem to bother Winnipeg as long as Head Office got cash.The men were silent for a moment and then Sandhu said, “You know, those suppliers are pretty ticked off but I don’t think they want to lose us as a customer either. Maybe we could negotiate some early payment terms if they knew how late we were planning to pay them.”“Right,” Lee agreed. “We need to know what kind of a discount would help us. Let’s dig out last quarter’s financial statements and, Hamel, would you please do a little analysis on our cash situation? We’ll compare the current working capital to the new targets, and see if we can come up with a plan to keep paying our customers on time.  I think we have to convince head office we can reduce the Cash Collection Cycle without extending our payables. Let’s meet first thing in the morning.”