PageTurner Bookshop: Cash on the Shelf
PageTurner Bookshop is an independent store in Kingston, Jamaica. Annual sales are J$2.4 million, with a gross margin of 35%. The shop sells to the public and to schools. About 60% of sales are credit sales to schools, and the average collection period is 75 days. Suppliers now demand cash on delivery because the shop has been late paying. Rent of J$180,000 is due at the start of each quarter. The owner has J$150,000 cash and expects the next rent payment in three weeks. Inventory is J$900,000 at cost, including many slow-moving titles. An online retailer offers discounts of up to 30% and free delivery. The owner is considering stopping school credit sales, closing the physical shop and moving online, or borrowing a short-term loan at 18% annual interest to cover rent and stock.
1. Calculate the immediate rent shortfall and estimate how much cash is tied up in receivables. Assess whether the owner can safely meet the rent from cash.
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Rent due is J$180,000; cash is J$150,000. Immediate shortfall = 180,000 − 150,000 = J$30,000, before paying wages or suppliers. Credit sales are 60% × 2,400,000 = J$1,440,000 a year. With a 75-day collection period, receivables are roughly 1,440,000 × 75/365 = J$295,890 tied up. Inventory is J$900,000 at cost. So the problem is not only the J$30,000; cash is locked in receivables and slow stock. The owner cannot safely meet rent and continue buying stock from J$150,000. Options: collect overdue school accounts, sell or return slow stock, negotiate a rent delay, or borrow a small short-term amount. A loan at 18% costs about J$4,500 a year per J$25,000, so it should be limited and backed by a collection plan.
2. Evaluate the proposal to stop all school credit sales. Recommend a better credit policy.
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Stopping school credit sales would remove 60% of sales and the receivable problem, but it would also remove steady bulk orders and may be difficult to reverse. Schools are likely to remain credit customers because of budget cycles. Better: tighten credit rather than stop it. Require a signed purchase order, set a credit limit per school, invoice immediately, offer a 2% discount for payment within 14 days, and stop supply when an account is over 60 days. Require a deposit for new schools. This keeps the volume while reducing the 75-day collection period. If a school has a poor payment record, move it to cash or pro forma. Stopping all credit is a last resort.
3. Recommend actions to improve cash flow and respond to the online retailer. Should the owner close the physical shop?
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To improve cash flow: (1) run an ABC and aging review and discount or return slow-moving inventory to release cash; (2) negotiate consignment or sale-or-return with suppliers for slower titles; (3) collect receivables aggressively and set credit limits; (4) reduce rent risk by negotiating monthly payments; (5) use a short-term loan only for the rent gap, not for more slow stock. To respond to the online retailer: do not close the shop immediately. Use the shop as a click-and-collect and community events space; add a simple website with stock visibility; offer school bulk ordering and a loyalty scheme. The online rival discounts up to 30%, so competing on price alone is unsustainable; compete on speed, service, and school relationships.