Cape Chemical Case Risks - Paper Example

Cafe chemicals sales policy insists on the need to add more inventory to meet sales forecasts. The policy with all its advantages exposes it to a couple of financial risks that could be minimized or eliminated to reduce any losses that it may face in the long run. The need to add more inventory requires additional borrowing but with lenders keen on having the debt ratio lowered, Cafe chemicals should adjust this policy to ensure that its credit status improves to eliminate the risk of default so that with increased sales, it is still able to meet and pay obligations in timely fashion and still remain in a liquid position to add inventory in the long run necessary to meet future sales forecasts

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The next-day delivery service has given Cafe an edge over its competitors and figures from sales show increased profits as proof its working well for them. Despite this positive, its come with the challenge of more investment in inventory coupled with the need to lower the debt ratio which would make it possible to borrow. The service, also a part of its effective sales policy will also require the need to reduce risk of default to allow borrowing to reduce shortages on inventory which leads to missing of sales forecasts

Cafes market share continues to increase especially since more customers, even with a low credit rating are brought on board. This has the effect of increasing sales and accounts receivable but with relaxed collection efforts its come with the risk of more late payments, the outcome of which is an unchanged experience with bad debt losses.

Marketing

Cafe Chemicals, a new distributor looking to expand its operations to have an even larger market share will have to keep a sizable amount of inventory and streamline its operations to be more efficient. This will require it to reach out to prospective customers a task the sales force should handle effectively given its policies such as next-day delivery are working very well for them. In developing new products, apart from blending and repackaging services advertisements should be made industrial users of its products about what new they have, services they offer. This could be done through the local media, online or posters in locations where it operates and even including stickers attached to products it sells.

Cafe Chemicals could also organize or attend workshops with competitors or other related industries, platforms through which they should interact with prospective customers and find avenues to educate them on the products they offer

Management and Recommendations

Clearly, Stewart is incredible working on sales. The results have remained positive over years consistently but its difficult to draw the missing link between increased profits and tracing the companys liquidity position. I recommend A permanent accounting team overseeing the latter needs to fill this shortage so as to streamline cash flows and make more informed decisions to tackle the need to lower the debt ratio and increase the ratio of the time interest earned. Relevant information such as important ratios and financial statements should be available by this team

The bad debt losses experience needs to be looked into and measures put in place to ensure this changes. I would propose the sales team change its position on allowing customers with lower credit ratings to expand sales. This ensures that payments due are made in the time since customers with lower rates tend to pay late or even default on payments. The sales team should also tighten rules to increase efforts put on collection, a move with similar effects that will go a long way to making sure that payments are made in time, reducing or eliminating the risk of defaulting

Cafe Chemicals should definitely work on expanding operations. An increase in the size of the sales team should be effective in making operations more efficient but with limited ability to pay obligations timely, I would recommend more balancing of books, which would mean an accounting put in place as previously proposed. This team should handle the now created need to maintain good ratings with lenders and reduce debt ratios, increase time interest earned ratio to allow Cafe to borrow funds and meets operational needs as they come.

The distributor should also seek to reach a new type of customers and not just focus on the industrial users. By identifying the needs of these customers and tailoring new product lines suiting their needs, the sales team should be able to find a market for such products in Cafes areas of operation. Initiatives such as giving discounts to loyal customers should give them a hold of their market share and to bring more and new customers to Cafe, the sales team could also look into education on new products and price reductions as measures that would lead to increase in sales and profit margins in the long run.