Page 14 - CIMA MCS Workbook August 2018 - Day 2 Suggested Solution

CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY

This is an area which at the moment requires immediate attention.

Ensure sound credit control procedures are in place
All potential customers should be assessed as to their creditworthiness prior to being accepted.
This might involve purchasing credit agency reports or performing an internal assessment by
looking at financial statements. In addition there should be procedures in place for the regular
monitoring of outstanding debts and for chasing up late payments through telephone calls and
letters.
Offer prompt payment discounts

We could look into offering prompt payment discounts to these customers as an incentive to pay
earlier than normal. This will clearly impact on our profit margin, but the benefits of receiving
the cash earlier and the reduction in recoverability risk might be worth it.

Financing of receivables through factoring
Ultimately, to protect against the risk of irrecoverable debt, we could at a future date factor our
receivables under a without recourse agreement. This would in effect mean that we would sell
our outstanding debts to a finance company which would be responsible for recovering the
monies and would take on the risk of recoverability. This would have the effect of immediately
improving our cash flow, although it would be relatively expensive to implement.
Recommendation

In order to cope with what could be rapid growth and to improve processes, I recommend the
recruitment of an additional experienced credit controller be prioritised.

Kind Regards
Finance Officer.

70 KAPLAN PUBLISHING