Last year Acme Anvil Co. had their best year ever. Sales targets met, manufactur
ID: 344670 • Letter: L
Question
Last year Acme Anvil Co. had their best year ever. Sales targets met, manufacturing productivity and quality improved. This year sales are even better and manufacturing is still improving operations. At the end of last year, Elmer the sales manager agreed to 90-day (previously 30-day) payment terms for 6 of the largest customers. This was strategy was adopted to beat the competition. These 6 customers account for over 40% total sales dollars.
Jessica the CFO has just informed the COO that she cannot meet payroll this week – there is insufficient cash on hand. The COO and CFO take a quick look at the details – comparing last year’s data to this year’s YTD data, double numbers they double checking the numbers, which look pretty good. They jump to the conclusion that someone has defrauded Acme (sales great, operations under control).
Where is the cash?
What other ‘financial’ explanation could there be?
What numbers should they look at?
How could this catastrophe have been prevented?What actions do they need to take to meet payroll?
Explanation / Answer
Where is the cash?
Answer: Elmer the sales manager agreed to 90-day (previously 30-day) payment terms for 6 of the largest customers. This was strategy was adopted to beat the competition. These 6 customers account for over 40% total sales dollars and this leads to cash.
What other ‘financial’ explanation could there be?
Answer:comparing last year’s data to this year’s YTD data,
What numbers should they look at?
Answer:Double numbers.
How could this catastrophe have been prevented?What actions do they need to take to meet payroll?
By extending hte Credit Period and allowing cash discount, if the payment is made well in advance, e.g. 2/10, Net 30.Reducing the deliquency cost of the customers and borrowing the money from a sister concern, at lower interest rate and increasing the capacity utilization.
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