Answer to Question #154679 in Finance for Joe Sid

Question #154679

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 GreenPower 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

Expert's answer
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