Receivables Management for Sooner Pharmaceuticals

Answer

Receivables Management for Sooner Pharmaceuticals

             The major purpose of Sooner Pharmaceuticals is to have the business licensed for selling and supplying the drug (Sneeze Relief). The founder of this company, Kathleen produced and distributed the drug to different retailers. Thus, to ensure that the organization remains running, Kathleen must formulate a business plan containing detailed information about receivables data, and business funding. Kathleen intends to present this information at a venture capital conference to hire a qualified venture capitalist that can provide the business with the required funds. Reportedly, venture capital monies are short term and it is projected that over 80% of the funds that the venture capitalist goes into constructing the infrastructure required for expanding the business.

            During the conference, Sooner Pharmaceuticals plans to successfully explain receivables management and offer a spreadsheet of receivables including account receivables, average collection period, uncollected balances, aging schedules, as well as, quarterly carrying expenses for the periods ending March and June. Providing this information will enable Sooner Pharmaceuticals to offer additional information about receivables and enable investors (venture capitalists) to eradicate the effect of cyclical variations because of seasonal sales and pay more attention to precise receivables because Sooner Pharmaceuticals produces a seasonal drug. Interestingly, Sooner Pharmaceuticals must clearly understand receivables data, financing and market retailers to succeed in the market.

Receivables Management

            Given that Sooner Pharmaceuticals is a new startup organization that experiences stiff competition from large companies with saturated market, it must be careful and cautious on how it manages its receivables. Gapenski and Pink (2013) noted that an account receivables is established when a customer buys a product but does not cash payment or does not pay instantly. Nonetheless, unless the client is making cash payment for each transaction made, the firm will have a comprehensive receivable portfolio that must be monitored and managed properly. As a member of the consultation team, Kathleen should strictly follow a recommended revenue cycle format to manage the financial position and health of the Sooner Pharmaceuticals. The revenue cycle requires regular monitoring due to external factors that cause havoc and hinder other parts of the cycle (Gapenski & Pink, 2013). The firm should not only take into account the overall account receivables balances but also use other quality metrics including aging schedule, average collection period, quarterly carrying costs, and uncollected balance schedule. Using these metrics will enable investors and the organization to clearly understand receivables and in turn makes the business to succeed.

             The average collection period (ACP) enables the organization to supervise and estimate the duration that an organization takes to work on a submitted invoice. Sooner Pharmaceuticals that ACP is less than 30 days. Although some organizations cannot make this a reality due to their payment structure, the stated procedure is the most appropriate practice for Sooner Pharmaceuticals. Similarly, the aging schedule has a per company plan for the payment structure of the organization since it enables it to examine time taken for the invoice it be paid. This information is critical when a firm wishes to carry out research about their ACP, uncollected balances and carrying costs. At the same time, quarterly carrying and uncollected balance schedule plays a critical role in the whole management of receivables. The stated metrics provides the organization with the opportunity to track and get monies that have not been gathered. When these funds are not collected within the allocated timeframe, the firm risk having its balance uncollected leading to loss.

            A major issue that Sooner Pharmaceuticals should understand is that Sneeze Relief currently experiences stiff competition from established companies, such as Caro Corporations, that was regarded the original producer of the drug that manufactured a relatively cheaper version of the Sneeze Relief. Nonetheless, the competitive advantage that Sooner Pharmaceuticals has over Carpo is that Sneeze Relief is more effective as compared to Capo because the latter can only treat certain allergens. In this effect, marketing is important for Sooner Pharmaceuticals because it covers numerous allergens that improve its success for persons suffering from allergens. As a fact, patients and customers can have accurate information regarding the differences that can help improve the performance of Sooner Pharmaceuticals.

            Secondly, Sooner Pharmaceuticals has a comprehensive receivables management spreadsheet that can assist improve and sustain financial position as long as the organization continues to use its monitoring system that will enable them to easily access and understand changes in demands and trends in the industry. Besides the monitoring system, the business plan and model should remain rigid elastic to take into account changes relating to changes in demands and trends. In case, Sooner Pharmaceuticals strictly follows the proposed plan and sustains receivables, the organization is likely to increase its performance in the first and second years of its operations.

            According to the initial information presented in the case study, the months with the highest performance are March and May. Therefore, Sooner Pharmaceuticals should extend its brand to several areas so that it can get a better chance for optimizing revenue and attaining its goals. Nonetheless, while expanding, the organization should be strategic because of funding. In particular, 20% of the receivables will continue bringing more revenues to the organization provided that the firm effectively collects its balances.

            In conclusion, Sooner Pharmaceuticals has a wide business plan and model for managing its receivables as shown in the spreadsheet and exhibits provided in the case scenario. Nonetheless, in case the organization continues to remain competitive and elastic enough to fulfil the market demand or trend changes, the pharmaceutical will continue to make profit. Kathleen and the entire management at the organization should continue focusing on the key reasons and goals of the organization. As long as Sooner Pharmaceuticals continues to adopt effective marketing strategies, budgeting requirements, and receivables management, it will thrive for many years to come.