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The management of receivables – Change of policy – ACCA Financial Management (FM)

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  1. Hi Mr Moffat, why do we compare a 30/60 or 90 day saving on overdraft/finance against an annual discount cost? Wouldn’t the cost of discount have to be apportioned by the same 30/60 or 90 days to make it a fair comparison of cost? thanks in advance.

  2. I agree that If receivables are paying sooner then we have money to reduce an overdraft and therefore save interest but my concern is that after applying new policy, we received 2,958,904 which we will deposit and interest will be saved so why calculating saving on difference amount.

  7. Hi Mr Moffat, I have 2 questions.
    1. Why can’t we use the formula from previous lecture on early settlement discount to count the discount cost?
    2. Why can’t we just calculate the old cost vs new cost and compare to make a decision?

    • 1. The formula in the previous lecture does not deal with debtors paying at different stages and the pattern of repayments changing if there is a discount. Nor does it deal with the fact that offering a discount might increase the level of sales overall.
      2. We do effectively do that. Either compare to two costs, or look at the differences – it makes no difference.

  8. Hi sir, thank you for the lecture. Why is there a bank overdraft interest charged on the reduced money that the company is receiving from making sales? What is the connection between overdraft interest and receivables? Thank you

    • If a company collects money from customers sooner, then receivables will be lower and at the same time they will have more cash which will reduce their overdraft (and save interest). It is the reverse if they take longer to collect the money from customers.

  9. Hello Sir,

    I have a doubt in the Example 2, it says that the 60% customers will opt for the discount ideally the company will only provide the discount to the 60 and 90 credit days debtors hence when we deduct the 60% from the 80%(50% + 30%) the new receivables will be only 20% of 90 days.

  10. Hi Sir, very helpful lecture. Please explain one thing. Should not we consider the cost of overdraft for one month in example three after the change in policy. Because adding factor does not cause us to receive full payment immediately.
    Thanks.

      • Hi Sir, the overdraft is it for payment to supplier? we give discount for receiving the money faster, so that we have enough fund to pay supplier without overdraft? Correct me if i am wrong. Thank in advance.

      • An overdraft can exist for many reasons. For example it might exist because they had just spent a lot buying a new machine. Whatever the reason for it existing, if we get customers to pay us sooner then it will help reduce the overdraft (and so save interest).

  14. Hi Sir ,I have a doubt regarding the OD Interest saving , why is this calculated for a year ? in this question we would receive the debt in 2.3 months , and factor will pay after 1 month, therefore OD Interest saving is for 1.3 months only right ?

    Please correct me if i m wrong
    Thanks.

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