Page 13 - CIMA MCS Workbook August 2018 - Day 2 Suggested Solution

SUGGESTED SOLUTIONS

CHAPTER TEN

EXERCISE ONE (WORKING CAPITAL)

From: Finance Officer.
To: Nicola Collette, CFO
Subject: Re: B2B contracts

Hi,
I have drafted my thoughts on the following areas:

Receivables management
1. The impact of the new customers on how receivables are managed

The nature of the expected new customers that we will be taking on will have a number of
impacts.

Volume and complexity of transactions
Firstly, there will be an increase in the volume and complexity of transactions that will need to
be processed within the finance team.
At present membership fees and class fees can be paid by credit card, debit card or direct debit.
As a result invoicing is only required for extras such as classes and there should be few bad
debts. The current receivables period is consistent with most members paying monthly. Where
members miss a monthly payment or fail to pay an invoice for classes, the credit controllers will
need to contact them.

With B2B contracts the number of members will increase and we will need to ensure that the
correct discounts are applied and joiners and leavers are identified before invoicing the
companies concerned. This will be more complex than the current system and will result in more
invoicing.

There are two aspects to this that will need to be addressed: ensuring that there is adequate
employee resource to deal with the processing of membership details and invoices as well as the
ability of our systems to deal with the volume of data.

Receivables days
Secondly, there will be a potential detrimental impact on our cash flows as businesses are likely
to pay later than the 36 days currently achieved.
Recoverability risk

Thirdly, there will be an increase in the recoverability risk that the business faces – for example,
if the businesses we are selling to are become insolvent or simply cease to trade. This will result
in larger write-offs than currently experienced

2. Measures to mitigate any additional risk
There are a number of measures that we could adopt to manage the additional risks arising from
selling B2B.
Recruit additional qualified people for the finance department
It would be sensible to recruit an experienced and qualified credit controller to ensure that all
new business customers are assessed as to their credit worthiness and that the receivables are
monitored and chased for payment as required in a timely manner.

KAPLAN PUBLISHING 69