# receivables & payables management

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This topic contains 10 replies, has 2 voices, and was last updated by  John Moffat 1 year, 5 months ago. This post has been viewed 40 times

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• Miss A..
Participant
• Topics: 27
• Replies: 37

Sir, how come we know there is net benefit in case of payables & receivables?

and what’s the formula of net benefit?

John Moffat
Keymaster
• Topics: 3
• Replies: 3805

There is no formula.

You have to list the costs and the benefits (over a year) and then decide if there is a net benefit or a net cost.

Have you watched my lecture on this?

Miss A..
Participant
• Topics: 27
• Replies: 37

yes, i have watched.
Sir, I couldn’t understand how do we have net benefit in example 5 of chapter 5???

I have understood the calculation but i am unable to understand the conclusion.
”Effective cost of discount is 22% > 13% overdraft interest , so we take the discount”. Why????

Miss A..
Participant
• Topics: 27
• Replies: 37

Isn’t it like this that if we are payables we could take discount if it costs higher than overdraft interest and vice versa.
And if we are are receivables , we wont give discount if it costs higher than overdraft interest and vice versa.

Am i right???

John Moffat
Keymaster
• Topics: 3
• Replies: 3805

In example 5, it is costing us 22% if we do not take the discount.
But if we do not take the discount then we pay later and save only 13% in overdraft interest.
It is better therefore to take the discount and pay early – we will gain 22% from the discount and only lose 13% from the extra overdraft interest.

Your second message is correct and agree with what I have just typed above
(because example 5 is payables)

Miss A..
Participant
• Topics: 27
• Replies: 37

ok

Miss A..
Participant
• Topics: 27
• Replies: 37

anyways , what is overdraft interest?

Miss A..
Participant
• Topics: 27
• Replies: 37

and when we pay extra overdraft interest?

John Moffat
Keymaster
• Topics: 3
• Replies: 3805

An overdraft is a negative bank balance. You have to pay interest on a negative bank balance. If you pay payables early then you will have a bigger overdraft and therefore pay more interest.

Miss A..
Participant
• Topics: 27
• Replies: 37

how come is that If we pay payables early then we will have a bigger overdraft??

John Moffat
Keymaster
• Topics: 3
• Replies: 3805

Because paying payables means that you are paying out cash!

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