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August 26, 2023 at 10:13 pm
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.
August 19, 2023 at 10:05 pm
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.
August 19, 2023 at 10:07 pm
fall in receivable is my loss as i will not receive that amount because i gave discount.
John Moffat says
August 20, 2023 at 8:36 am
The total cash received doesn’t change. It is simply that it is received earlier than before and so they have more cash they can deposit than before.
August 17, 2023 at 11:04 am
Hello sir, thank you for the lecture. I’m having a hard time understanding why we are multiplying the receivable difference with the overdraft rate.
September 27, 2023 at 5:01 pm
sir did that to get the saving. you could have calculated the cost for financing the receivable under the old policy and the new then subtract to get the saving with is the same as what sir did…
April 4, 2023 at 4:17 pm
Sir if the interest savings amount was bigger then cost p.a. then we should go with the decision of giving discount right ?
April 4, 2023 at 5:10 pm
Never mind i figured it myself, sorry for rookie questions as my english is little weak soo sometimes i get stuck on minor things like these. I really appreciate ur amazing lectures
April 5, 2023 at 7:13 am
No problem, and thank you for the comment 🙂
November 15, 2022 at 12:11 am
Hi sir, we also need to see some examples when the credit period changes, for example from 30 days to 60 days. Is that possible please? Thank you!
November 15, 2022 at 7:55 am
Example 2 is an example of that. You will find many more in your Revision Kit and the understanding is exactly the same.
April 19, 2022 at 8:49 pm
hi sir. is there any other way we can solve these examples without calculating the average receivables? this is little confusing. Thankyou
April 20, 2022 at 7:03 am
Sorry but this is really the only way.
April 7, 2022 at 4:14 pm
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?
April 8, 2022 at 9:21 am
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.
November 23, 2021 at 1:14 am
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
November 23, 2021 at 8:34 am
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.
November 13, 2021 at 8:00 am
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.
November 13, 2021 at 4:16 pm
No. The question says specifically that 60% will pay within 30 days and that the remainder (which is 40%) will take the full 90 days.
November 2, 2021 at 5:21 pm
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.
November 3, 2021 at 5:54 am
We have effectively don’t that because we have looked at the cost currently compared with the cost if they all take 1 month. The saving is the difference between the two.
June 19, 2021 at 8:18 pm
Sir please how is a fall in receivables savings? I don’t get it. Please help me
June 19, 2021 at 8:24 pm
I think I understand now, thank you.
June 20, 2021 at 5:54 am
May 26, 2021 at 5:39 pm
well explained sir
May 27, 2021 at 7:44 am
Thank you for your comment 🙂
September 18, 2020 at 2:38 am
Hi, would like to clarify as below: Is drop in average receivable mean saving in overdraft? How to explain this? i am a bit confuse. Thank you.
September 18, 2020 at 8:35 am
If receivables are paying sooner then we have money to reduce an overdraft and therefore save interest.
September 18, 2021 at 4:56 am
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.
September 18, 2021 at 10:55 am
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).
August 11, 2020 at 2:01 pm
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.
August 11, 2020 at 4:03 pm
Receiving the money earlier means that the average debtors balance is lower throughout the year. Therefore the overdraft can be lower through the year.
August 11, 2020 at 6:06 pm
ok i understand ,Thank you very much for your prompt response,much appreciated.
August 12, 2020 at 9:21 am
You are welcome 🙂
June 2, 2020 at 7:02 am
May i know where these questions are from? Study text or exam kit?
June 2, 2020 at 4:07 pm
From our free lecture notes (as it says at the very start of each lecture!!).
The link to download the lecture notes is just above the lecture.
April 8, 2020 at 4:34 pm
Very helpful ..thank you sir
February 11, 2020 at 4:59 am
Nicely Explained Sir
February 11, 2020 at 7:34 am
February 6, 2020 at 10:23 pm
Good lecture Sir.
February 7, 2020 at 7:45 am
September 20, 2019 at 7:42 am
Lesson very helpful management of inventory
September 20, 2019 at 8:26 am
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