Management of Receivables and Payables OT Flashcards
Keep receivables?
As low as possible
Do we have to keep credit?
Yes we need to maintain some level
Credit checks?
Check first whether there’s a chance they will pay us and set a new limit
Credit terms?
Print these on invoices
Discounts?
Pay early (e/g/ within 7 days of 30 day credit term), get a discount
What is invoice discounting?
Sell invoices to the bank. We desparately need short-term money today so we get cash through the bank when customer pays
Issue with invoice discounting?
Bank may charge interest, customer will not
Factoring?
Pay another company to collect our receivables
Payments in advance and factoring?
Give payments in advance. Factor gives us 20% of money when they get invoice and the 80% when collected from customer
Non-recourse factoring?
Factor guarantees there will be no irrecoverable debt. Factor gets the bullshit
Settlement discount main questions?
Should we offer them or not to customers. Work out per year
Benefit of giving a discount?
It can save on overdraft. But yearly interest % shouldn’t be higher than overdraft %
How is a change in policy dealt with?
Split into costs per annum and savings per annum and then compare the two to get the net cost
When it’s a net cost?
Don’t give the discount, don’t employ the factor
Get average receivables?
(Weighted average / months) * total receivables
When it’s a net saving?
Give the discount. employ the factor
Net saving?
Savings > Cost
Net cost?
Cost > Savings
Management of payables key concept?
Try to delay payment as soon as possible. But not as bad to stop suppleirs paying
What can suppliers do to encourage payment?
Offer us a discount
What to work out in payables working?
The cost of delaying. Compare with the overdraft percentage
If cost of delaying > bank interest?
Take the discount
