Wk 4 Individual Assignment Jim Reed Clothier

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Reed's Clothier, Inc Working Capital Policy Krashanti Wyatt Fin/370 10/24/2011 Richard Jenkins Reed's Clothier, Inc Working Capital Policy Jim Reed II had banked with First Virginia National Bank for almost 30 years and his father, who had established Reed’s Clothier in 1934, had only banked with First Virginia. Whenever Jim went to First Virginia National Bank, he always dealt with Bob Roberts, his VMI classmate. Jim and Bob would talk about the good old days at the military school, an increase in the line of credit had always been granted without Bob looking at Jim financial statements. When Jim went to First Virginia National Bank this time he was introduced to Harold Holmes. Jim found out that Robert had been promoted to a public relations job with the bank. Jim Reed went to the bank to see about increasing his line of credit another $100,000. Holmes asked Jim to see his up-to-date set of financial statements. Holmes talked to Jim about cash flow problems and even mentioned the possibility of financial distress. Whenever Jim would meet with Bob, he never asked to see Jim financial statements. Holmes informed Jim that the bank would not extend their line of credit any further until the overdue not payable for $130,000 be paid within 30 days. Holmes told Jim that he needed to reduce the store’s inventory and to strongly suggest an inventory reduction sale. Holmes suggested that Jim request the help of a consultant who could help him establish a better inventory system. Holmes suggested that Jim reduce his inventories and accounts receivables to the industry averages. Finally, Holmes suggested that accounts receivable be reduced by aggressively collecting its past due accounts. Jim was very disappointed; he knew that he had allowed his collections efforts to lapse in his efforts to increase sales. Jim Reed realized that his store was in

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