Receivables and Payables Flashcards
(12 cards)
How can accounts payable help working capital?
May be used as a source of short term financing by delaying payments to suppliers.
What are the issues of using accounts payable to improve cash flow?
Loss of settlement discounts.
Potential legal action
Would using accounts payable to improve cash flow be beneficial for Halfpenny?
Probably not, Halfpenny close relationship with suppliers and they have a 66 payable days, any increase in payment days will only detriment very positive supplier relationships.
What is factoring or invoice discounting of trade receivables?
Entities receivables are sold to factor company, usually owned by a bank.
Upon the sale, the factor advances the company a percentage of the receivables balance immediately, typically around 80%.
Would a factor work for Halfpenny?
Probably, as Halfpenny only has B2B customers so it does have a receivables balance to factor. Could be a good way to manage deficits in the short term.
What’s a negative of using a factor?
Would have to pass our credit control over to the factor which could disrupt our relationship with our customers.
What is ‘short-term borrowing’?
Can be funded by borrowing from the bank. Bank overdrafts or bank loans.
What are the advantages for bank overdrafts?
That they are flexible and companies only pay for what they’ve used so tend to be cheaper than a bank loan.
What a disadvantage of an overdraft?
May require security and may have high finance costs.
What’s an advantage of a bank loan?
Contractual agreement for specific lump sum, for a fixed period of time. They provide more security.
What’s a disadvantage of a bank loan?
Less flexible than overdrafts and can be expensive.
Should Halfpenny borrow?
Probably not. Borrowing more will have an impact on profit figures. Also, Halfpenny has a quick ratio that is less than 1, which could also give a negative signal to potential lenders.
