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Cash Management

GreenPower is an Irish-owned and headquartered electricity supply business with operations in Ireland, the UK, and France. It provides electricity to domestic and commercial users in each of these countries. It receives 50% of its revenue in Ireland, 30% in the UK, and 20% in France. Total revenue is approximately 25 million equivalent. It does not generate electricity. It purchases electricity that is generated from renewable sources from the National Grid in each country and sells that electricity on to customers. It sources the electricity within the country in which it is ultimately sold to customers. There is a lag of 30 days between the time it purchases electricity from the National Grid and when it must pay for that electricity. It bills customers in Ireland and the UK on a monthly basis in arrears for the usage in that month. In France the billing period is every two months. These are standard billing periods within each market. The business is in a surplus cash position generally, i.e. over the course of a year it will have a positive bank balance. However, periodically there will be times when it goes into substantial overdraft when it must pay the National Grids in each country for the electricity it has purchased. The National Grids are very strict on the 30 day payment terms and not meeting these terms would be very damaging to the business' relationship with its key supplier. The Green Power Finance Director has recently been appointed and is trying to develop a more efficient cash management system. She believes the business is not managing its cash well and could make savings or make risk management easier if they had better ways of ensuring consistent cashflows. How would you advise the Finance Director on banking structures or other things the business could do to make their cash management more efficient? GreenPower is an Irish-owned and headquartered electricity supply business with operations in Ireland, the UK, and France. It provides electricity to domestic and commercial users in each of these countries. It receives 50% of its revenue in Ireland, 30% in the UK, and 20% in France. Total revenue is approximately 25 million equivalent. It does not generate electricity. It purchases electricity that is generated from renewable sources from the National Grid in each country and sells that electricity on to customers. It sources the electricity within the country in which it is ultimately sold to customers. There is a lag of 30 days between the time it purchases electricity from the National Grid and when it must pay for that electricity. It bills customers in Ireland and the UK on a monthly basis in arrears for the usage in that month. In France the billing period is every two months. These are standard billing periods within each market. The business is in a surplus cash position generally, i.e. over the course of a year it will have a positive bank balance. However, periodically there will be times when it goes into substantial overdraft when it must pay the National Grids in each country for the electricity it has purchased. The National Grids are very strict on the 30 day payment terms and not meeting these terms would be very damaging to the business' relationship with its key supplier. The Green Power Finance Director has recently been appointed and is trying to develop a more efficient cash management system. She believes the business is not managing its cash well and could make savings or make risk management easier if they had better ways of ensuring consistent cashflows. How would you advise the Finance Director on banking structures or other things the business could do to make their cash management more efficient