Question

Scenario:
* 300-word minimum*

The Chief Financial Officer (CFO), Karl Richland of Semtell Company in Cincinnati, Ohio is asking for your advice. The CFO explains sales are increasing but there is a constant matter of not having enough cash to meet payroll or pay vendors within 30 days.
Checklist: Prepare a business letter (see the rubric) to the CFO to explain:

1. Explain why cash can go down even when sales are up; refer to “receivables.”
2. Analyze the scenario and explain three accounts the CFO should review each day and explain why. Focus on short-term balance sheet accounts, i.e., “receivables and payables.”
3. Your business letter should:
•   Use the accepted business letter format and example as provided above.
•   Utilize Standard English and use correct spelling and grammar.
•   Provide a clearly established and sustained viewpoint and purpose.
•   The writing should be well ordered, logical and unified, as well as original and insightful.

Answer 1

Karl Richland , DATE-

Chief Financial Officer (CFO),

Semtell Company,

Cincinnati.

Dear sir,

This letter is in relation to the explanation of the fact as to why the cash flows of your company are falling despite of increase in sales of your company. For this analysis the first thing that requires attention is CREDIT SALES, if increase in sales reflect increase in account receivables in equal propotion then the cash flow will be less effected by increase in sales. For example if company had sales of $100000 in year 1 and $300000 in year 2, and against such an increase of $200000 sales ($300000-$100000) there is similar increase in accounts receivables then of course there will be no increase in cash inflow due to such increase in sales.

For a detailed analysis of the current scenario, you as CFO, should pay heed on the daily basis, on at least few accounts like account receivables, account payables and  expense accounts. If on increase in sales the, account payables has increased and similarly the account receivables has also increased, in such a case if payroll of account receivables is more then that of payroll to account payables by our company then it will be obvious that our company will face difficulty in paying back the vendors on time. For example, if the debtors pay us in 2 months and we are required to pay to our creditors in 1 month, then it is obvious that our company may fail to make payment to our vendors on time. In case, the increased sales are result of the increased sales promotion activities which are paid in cash, then even due to increase in sales, the company may fail to make payment to it's vendor on time. Hence, increase in sales may or may not lead to increase in cash flows of the company. Therefore, minute analysis, on daily baisis of above mentioned accounts must be carried out.

Your's Sincerely,

Name-