Need your help with assignment, I have been hired as an outside consultant to advise Kathleen pharmaceuticals about her receivables management. So far, I have developed a model that produces accounts receivable balances, average collection period, aging schedules, uncollected balances schedules, and quarterly carrying costs for the end of March and the end of June. The uncollected balances schedule permits managers to remove the effects of seasonal and or cyclical sales variation and to construct an accurate measure of receivables payment patterns. Therefore, it provides financial managers with better aggregate information than do such crude measures as the ACP or aging schedule. Kathleen anticipates that the venture capitalists at the conference will ask some questions concerning the reduce carrying cost of receivables.

Kathleen is currently working on the business plan for Sooner pharmaceuticals that she will present at a venture capital conference in New York. The main purpose of the conference is to match entrepreneurs with venture capitalists who are interested in providing capital to fledgling firms. She has spent a lot of time thinking about how Sooner pharmaceuticals receivables should be managed. She is concerned about this issue because she knows of several small drug manufactures that have gotten into serious financial difficultly because of poor receivables management.

Initially, Sooner pharmaceuticals would sell directly and exclusively to four retail customers in the northeast. If demand provided solid, the company would expand into other areas and wholesale channels. Sales are expected to be highly seasonal: Allergy drug sales are slow during the winter months, but they pick up dramatically in the spring when plant pollen levels reach a peak. Business falls off again in the summer, but it pick up in the fall when the ragweed season begins. Kathleen's sales forecasts for the first six months of operations. Assuming Sooner pharmaceuticals receives financing and begins operations, the sales forecasts for the first six months of the second year.

Kathleen does not plan to give discounts for early payment; discounts are not widely used in the industry. On the basis of preliminary discussions with retail outlets; Sooner pharmaceuticals customer, she forecasts the payment schedule. She does not foresee any problems with bad-debt losses. First, the retailers with whom she plans to do business have been in operation for a long time. Second, she plans to carefully screen all customer. She believes these two factors will eliminate bad-debt losses. On average, she believes that 20 percent of receivables will contribute to profits, so 80 percent of receivables represent cash costs. Furthermore, the first national bank of Oklahoma has indicated that its receivables financing would cost 8 percent annually.

In spite of her optimism regarding bad-debt losses, Kathleen is concerned about Sooner pharmaceuticals potential level of receivables, and she wants to put in place a monitoring system that will allow her to quickly spot any adverse trends that develop. The total sales forecast for the first full year of operations is 800,000 packages. Each package, which will contain 12 tables, will be priced at $5.

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