Working Capital Management

Correct Answer: Implement a more stringent credit policy and improve collections processes to reduce accounts receivable days.

The most effective strategy to address SkyTech Solutions' working capital challenges is to implement a more stringent credit policy and improve collections processes to reduce accounts receivable days. This is because the company's primary issue is the strain on working capital due to a significant increase in accounts receivable days, while inventory turnover ratio and accounts payable days have remained relatively stable. Focusing on increasing inventory levels would tie up more working capital in inventory, which is not the main issue at hand and could exacerbate the working capital challenge. Negotiating longer payment terms with suppliers to increase accounts payable days might provide short-term working capital relief but could strain supplier relationships, which may not be a sustainable long-term solution. Therefore, addressing the root cause of the problem - the increase in accounts receivable days - by implementing a stricter credit policy and improving collections processes is the most effective approach to improve SkyTech Solutions' working capital management and support its growth objectives.

Correct Answer: Implement stricter credit policies and improve collections processes to reduce accounts receivable days

The best strategy for Stellar Industries to improve its working capital position is to implement stricter credit policies and improve collections processes to reduce accounts receivable days. Accounts receivable days indicate the average time it takes for a company to collect payment from its customers after a sale has been made. An increase in accounts receivable days means that the company is taking longer to collect payments, which negatively impacts its cash flow and working capital. By implementing stricter credit policies, such as conducting thorough credit checks on new customers and setting clear payment terms, Stellar Industries can reduce the risk of late payments or defaults. Additionally, improving collections processes, such as sending timely invoices and follow-ups, can help the company collect payments more efficiently. While negotiating longer payment terms with suppliers and optimizing inventory management can also improve working capital, these strategies do not directly address the primary issue of increased accounts receivable days, which is the most pressing concern for Stellar Industries based on the given information.

Correct Answer: Implement a more stringent credit policy to reduce accounts receivable days and improve cash inflows.

The best strategy for Nebula Co. to improve its working capital management is to implement a more stringent credit policy to reduce accounts receivable days and improve cash inflows. A high accounts receivable days indicates that the company is taking longer to collect payments from its customers, which negatively impacts its cash flow. By implementing a stricter credit policy, Nebula Co. can ensure faster collection of receivables, thereby reducing the cash conversion cycle and improving working capital. Negotiating longer payment terms with suppliers may provide temporary relief but does not address the root cause of the problem, which is the high accounts receivable days. Moreover, extending payment terms may strain supplier relationships in the long run. Focusing on optimizing production processes and inventory management is important, but holding more inventory will tie up more cash and further increase the cash conversion cycle. The primary focus should be on reducing accounts receivable days to improve cash inflows.