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Case 6: Supplier's Credits

The firm must always have sufficient cash to pay for its operating expenses. Thus the policy of the firm for minimum cash is to have enough cash in any given month to pay for next month expenses.

Among the actions that management can take to ensure the solvency of the firm are measures to source short term funds from Suppliers, particularly when there are periods in which the cash flows show that there will not be sufficient cash to cover running expenses.

So, investors want to know what action management can take in relation to obtaining Supplier’s Credits, when and in which amount, to always have the necessary cash to pay for operating expenses. Thus, management has been asked by the Board to come up with a plan to obtain and negotiate Supplier’s Credits at the right opportunity and in advance of the month when there will be a cash deficit.

To carry out a simulation on Supplier’s Credit to find out the most advantageous time to obtain such credit, by which amount and when to pay it back proceed as follows

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