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    • Profile photo of John Moffat says

      It doesn’t make any difference.

      You cannot force the customers to take a discount. However, you will offer one if it costs less that the interest we would otherwise paying – and then we would hope that everyone would take advantage of it :-)

  1. avatar says

    Dear Sir Moffat,

    Thank you for your grateful lectures.
    I have one question.
    In the example 2, when interest saved on lower receivables is calculated, new level of receivables is calculated as 20 million * 54 days/365 days.
    1% of discount was offered. 60% of customers are taking the discount. So new level of receivables is 20,000,000 – 120,000 after discount.
    Why is new level of receivables calculated as above, and not as follows?
    (20,000,000 – 120,000discount) *54days/365 days?.

    Best regards

      • Profile photo of John Moffat says

        The fact the we need fewer credit control staff means that we will save 20,000 if we use the factor. The saving of 20,000 is therefore listed as a benefit of using the factor.

        Using the factor will mean that average receivables are reduced throughout the year (because we are collecting money faster). Therefore the overdraft will be reduced, and therefore there will be less interest payable. It is the interest saved that is listed as a benefit.

  2. avatar says

    the management of recievables and payables when I tried some of previous paper exams it will become complicated how can I ease them and the lecturer said first list the costs and then the savings but that didn’t work at all exercises can you show other ways to solve them ease my understanding of this management of receivable and payables

    • Profile photo of John Moffat says

      Although you can set out your workings in different ways, the approach is always the same – we need to calculate the costs and the savings resulting from the new policy and make the decision on that basis.

      Every question is worded differently and when there is a problem it is in interpreting the question.

      If you have problems with any specific past exam question then do ask in the F9 Ask the Tutor forum and I will try and help.

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