PRMSC
...ow much money is available for disbursement for a certain period of time. PBMSC’s primary source of cash inflow is from the sale of merchandise to its customers. However, it is important to note that 90% of the company’s sales are on credit, thus the inflow of cash can only be recorded upon the receipt of payment for accounts receivable. Determining the average age of accounts receivable is the key to gathering a realistic estimate of the monthly cash receipts and credit collections. 2. Projected Cash Outflow – Cash outflows include payment for the purchase of inventory, payment for expenses, interest payments, etc. PBMSC spends much of its cash in paying its accounts payable, which arise from the purchase of inventories on credit. The outflow of cash is recorded upon payment of the accounts payable and not upon the delivery of inventories. It is therefore crucial to know when the payments are due and how much cash will be needed to settle the obligation. 3. Credit Terms - 4. Cost of Financing 5. Other non-quantitative factors Alternative Courses of Action: 1. Decrease the collections period 2. Increase the payables period 3. Minimize Expenses Recommendation: Preparing customer invoices immediately upon delivery of your goods or services to the customer. If you wait to prepare your invoices at the end of the month, for example, you may be adding as many as 30 extra days to your cash flow conversion period! 2) Monitoring your customers' use of credit and adjusting their credit limits accordingly. 3) Offering customers a discount for paying their invoices early. For instance, if your usual policy is to have payments due in 30 days, offer a small discount such as 2 percent to customers who pay within 14 days. 4) Establishing a deposit policy for works in progress. For example, if you deliver a serv...