Describe the terms of purchases of products from manufacturers.

7 Big Boy Gear, Inc. The date is now April 1, 2018. Ms. Cheryl Yu, president and owner of Big Boy Gear, Inc. (BBG) recently learned from the company's Chief Financial Officer (CFO) Mr. Jason Dahya that the company's cash balance has dropped to $1,660.1 Mr. Dahya further showed that, according to his forecasts for the coming 60 days, the collection of accounts receivable would not be sufficient to pay certain accounts payable on which speedy payment is important. Indeed, the forecasts show that BBG's expected purchases and sales to June 1 will result in greater accounts payable on that date than at present Suppliers have recently begun to complain to BBG about its slow payment of invoices. In fact, certain key suppliers have threatened to require that future shipments be paid for in advance unless progress is made toward more prompt payment. Some have even threatened to | "pull" franchises from BBG. After considering the CFO's projections, Ms.Yu has concluded that the company must obtain, as soon as possible, an increased loan from the company's primary bank, the Mahoning Valley National Bank. BBG currently has a loan of $10,000 from the bank on a six-month. unsecured, renewable note. Ms. Yu dislikes debt and is hoping to be able to avoid seeking any substantial increase. Nevertheless, she is confident that the growth of BBG's sales in combination with its increasing profits will allow the bank to increase the loan to $100,000 for a few months. Ms.Yu believes that this amount will allow her to "clean up the company's balance sheet" and make it unnecessary for her to spend time worrying about day-to-day financial problems. She is also aware that BBG is losing significant "early" payment discounts. Ms. Yu believes the company should target a minimum cash balance of $25,000 as an emergency measure. With these ideas in mind, Ms.Yu has decided to borrow funds for the company for a short period. Accordingly, she visited Mr. Taylor Stubblefield, vice-president and loan officer of Mahoning Valley, to make her request. Mr. Stubblefield was initially surprised at the size of the requested loan, but after reviewing BBG's financial statements (Exhibits 1 and 2), he commented that he had not realized the sizable increase in BBG's sales. Customary renewal of the modest currently existing loan, he commented, had been made in a routine fashion with an annual interest rate of 7%. Before granting such a substantial increase as requested by Ms. Yu, he had to consult with the bank's loan committees, but promised to advise Ms.Yu of the bank's decision quickly. BBG is located in Harbor Chase, MI, a nearby suburb of Detroit, MI. Ms. Yu had established BBG in 2007 with an initial capital investment of $50,000. He found a building and storage area on the coastal area east of Michigan and quickly obtained two major wholesale distributorship franchises for marine products. BBG is a wholesale distributor of sports equipment. Initially, the company specialized in water sports equipment Products included a variety of small sail and power boats made of 1 The numbers in the case may appear too small to be realistic or worth worrying about. If so, just add three 0's to all numbers. The concepts employed will be the same regardless of the dollar amounts involved. fiberglass and composite material, and outboard motors, water skis, scuba-diving equipment, and marine hardware and accessories. In 2015, so as to reduce the seasonal sales, the company diversified into winter sporting goods. Currently, sizable revenues from winter recreational items are now being realized. These items include skis, snowmobiles, sleds, skates, and hockey equipment. Although there is a pronounced seasonal pattern of sales for individual products, the addition of the winter sport items has resulted in a smoothing of sales throughout the year for the company as a whole. As a consequence, there is no significant monthly variation in sales within a year and annual sales have exhibited a steady long-term growth trend. The business has been profitable each year since its founding and sales volume has continued to grow. The company's employee staff is small, consisting mainly of clerical help and semiskilled labor. Ms. Yu knows the company can handle substantial increases in sales volume with its present facilities and personnel. The business operates out of a single location. Rent expense is $30,000 per year plus 5% of gross profit for the year. Purchases of products from manufacturers are generally on terms of 2% ten days, net 30 days.? BBG has rarely taken advantage of the purchase discounts and has, in fact, been meeting the 30-day deadline less often as sales growth has stretched BBG's need for funds. The financial condition of BBG's customers is a problem. Many are small retail businesses that are cash squeezed. Although BBG allows a 5% discount for ten-day payment, few customers pay within the 10-day period. While the company is thus forced to "carry many retail outlets for weeks or even months, the manufacturers of the various product lines insist that retailers' orders be promptly met by BBG. There is severe competition in the industry and there is a constant problem of losing retailers (i.e., customers) to another wholesaler of a competing product solely on the basis of credit extension. Nevertheless, distributorships from important manufacturers are aggressively sought and BBG is not in a position to search for the supplier that gives the most generous payment terms. Ms. Yu is optimistic that the popularity of boating, skiing and snowmobiling will continue to grow for years, and that it is important to be ready to participate in the growth. Ms. Yu's projections are that BBG's sales volume will be $1,800,000 for 2018 with further increases to $2,100,000 in 2019 and $2,400,000 in 2020.- Ms.Yu has paid dividends annually from the business and expects to pay $24,000 per year in dividends in the future. BBG's income tax rate is 40% per year. Mr. Stubblefield contacted several other marine and sporting goods wholesalers in the Harbor Chase region for references. They characterized Ms.Yu as a "creative salesperson" and an aggressive business woman whose basic objective is and always will be growth