Jones Electrical Essay Example for Free

Jones Electrical Essay Jones Electrical Distribution is a small company involved in wholesales of electrical devices and appliances. Even though Jones Electrical has been able to turn a profit over the past few years, they have noticed a shortage of cash when attempting to take advantage of trade discounts. Their current bank is unable to extend financing over $250,000, and Jones believes they will need considerably more to finance their operations. Therefore, Nelson Jones has decided to search for additional debt financing by discussing his options with a larger regional bank. Jones Electrical Distribution has been able to compete on the basis of competitive pricing, effective inventory management, and aggressive sales force. But even though the company seems to be operating successfully, its ineffective collections policy has drained the company’s cash leaving it in dire need of additional financing. In order to afford to continue taking advantage of trade discounts Jones Electrical Distribution needs to tighten its cash collection procedures. Another course of action is to take out a bank loan for $350,000 to finance his operations, which is the main conflict Nelson Jones is facing. The increase in accounts receivable and inventory in 2005 and 2006 were caused by the sales growth of $2.24 million in 2006. The effective annual rate of interest, if Jones pays on the due date rather than on the 10 day discount, is 27.24%. The $350,000 should be sufficient for 2007. Jones could reduce that by buying securities and other outside funding. Jones will have to cut spending without having to cut sales with his new larger line of credit.