Nevergreen's standard terms on sales invoices are 30 days, but analysis has shown that on average customers pay on 45 days. Total sales revenue is £10,000,000 and the company expects irrecoverable receivables of £200,000. A suggestion has been made to offer a 5% discount to customers paying when ordering (i.e. O days). It is expected that 20% of customers will take advantage of this. Irrecoverable receivables would be expected to fall to £100,000 and administrative savings on credit control would amount to £50,000. The average number of days to pay for the remaining 80% of customers would be expected to increase to 50 days.

Nevergreen's standard terms on sales invoices are 30 days, but analysis has shown that on average customers pay on 45 days. Total sales revenue is £10,000,000 and the company expects irrecoverable receivables of £200,000. A suggestion has been made to offer a 5% discount to customers paying when ordering (i.e. O days). It is expected that 20% of customers will take advantage of this. Irrecoverable receivables would be expected to fall to £100,000 and administrative savings on credit control would amount to £50,000. The average number of days to pay for the remaining 80% of customers would be expected to increase to 50 days.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 6P

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