Please write 150+ words per question.
1) Apart from the collection and payment policies, what other collection and payment policies could you use to better balance the cash flow needs of a company with its business partner relationships?
2) How can you sustain good longer-term relations with business partners (customers and vendors) in the face of the need to improve cash flow and hold down bank borrowing?
3) If a company's need to improve its cash flow may have led to delaying payment to a small vendor, which is very dependent on that company. How does the company balance the ethical issue of possibly putting the small vendor out of business with its need to improve its own cash flow?
The question is asking you to comment on the relationships, policies and ethics regarding some issues of working capital management.
<br>The question presupposes that there are some common issues about collection and payment, which are common across industries, this is not supported by evidence. For instance the payment system is a hospital maybe entirely through payment received from insurance claims. Also the question presumes that the vendor payment system can be commented on without reference to the industry. This is not usually the case. There are thousands of companies whose vendors, small or large are owned by the same group and payments are delayed for several years without any question about ethics or moral turpitude being raised.
<br>Given below is a template to help you answer the question.
<br>1. Cash in hand: The cash in hand policy should be such that adequate cash should be available for cash expenses and emergency payments, however at the same time there should not be excess cash that would lead to stagnant cash increasing the cost of holding cash.
<br>2. Purchase of raw materials: The purchase of raw materials should be made strictly according to the requirements and such that the purchases are made at the time of requirement of raw materials. Also a reasonable interest free credit period, usually of three months ...