Question

"Mini Case Study - Haley Roberts "

Haley Roberts is quite proud that she has grown her business in website design from a small startup to a mid-sized organization. However, she is now running into some “growing pains.” Now there are sales people and account managers that deal with the clients. Her Controller, Dan, oversees daily operations, human resources, and accounting. One day, Dan comes into Haley’s office to discuss the morning meeting. Sales have almost doubled from the prior year, but collections are down. SOMETHING has to be done! Dan and Haley refer to their notes of the ideas and concerns voiced at the meeting:

• Alex (sales) – “I’m no accountant, I just know sales. I have grown my sales by reaching out to clients who need our help but may not have the best credit. Just by giving them an extra month or so to pay makes a big difference! And who cares, as long as they pay? We still get the money!”
• Jessie (account manager) – “I just want to keep my clients happy. I do that by addressing their concerns, and I can tell you that their biggest concern is usually that they can get similar services cheaper somewhere else. If I start pressuring them to pay sooner, we may lose them!”
• Sam (accounting) – “All I know is that if we are going to get our vendors paid on time, we need to pull in our cash faster! I am tired of putting off payments and then sometimes paying interest or late fees just because I didn’t have enough cash to go around!”
• Dan (Controller) – “Maybe there are ways to get our cash faster without bugging our clients directly. There are companies that will buy our receivables from us, so we would not be dealing with the clients directly regarding collectibles. Of course, that would also cost us…”

Haley feels overwhelmed by all of her options. There is no easy answer. After reviewing the various perspectives above, what should Haley do? What would you do, or what advice would you give to Haley?

Answer 1

1)What should Haley do?

Haley being owner of the business Haley has to make a policies

a) cash discounts for early payment

b) evaluation of credit worthiness of the customer

c)collecting advances from the customers if there are huge transactions

d) before accepting a client Haley has to take guarantee from the banker of client

e) regularly preparing the dedtors aging schedule and take proper steps for realization of the debts due for more period

f) collecting debtor confirmations on amount due at regular intervals (Eg: every month ending,3 months ending,yearly)

g) collecting interest from the customers for payments made after due date

h)sending regular reminders to customers about money due from them

I) if there are sales to related parties we should ensure that there is a regular payments for the sales

J) maintaining good relationship with the suppliers,debtors

2)what would I do

Along with above policies

As per DAN (controller ) advice

We have to enter into a factoring agreement with a factor many units under small scale sector are becoming sick because of delay of there dues from large units introduction of factoring devices prove very beneficial for such units as it will free the units from hassles of collecting receivables to enable them to concentrate on product development and marketing

As per Alex (sales) advice

He is saying that to improve sales he is giving extra credit period of one month which effects the operating cycle time

Even though there are huge sales if there is no money to pay for salaries,expenses,creditors then the employees may resign there job, suppliers will not supply the inputs which leads to closure of business so to improve liquidity we have to give cash discounts for early payment

As per Jessie (accounts manager) advice

As he is saying that if we pressurise the customers we may loose them

In order to over come this we have to maintain quality in our services

We have to do cost control and cost reduction techniques to maintain cost of our services low if we charge less amount and maintain quality in our services then customer may not leave us

Other advices

1) implement Total quality managment technique

2) implement six sigma techinique

3) adopt bench marking technique rather than comparing other competitors

4) Try to develop Goodwill of the business

5) create brand name for our services & products