ExpertACCA · Question 16.3 · Working Capital Management
CASE 1: AQUAHARVEST LTD
AquaHarvest Ltd is a commercial aquaculture firm farming premium salmon. The company currently allows its wholesale customers 60 days to pay their invoices. However, due to cash flow constraints, the Finance Director is considering offering an early settlement discount of 2% if customers pay within 15 days. AquaHarvest currently finances its working capital using a bank overdraft that charges an interest rate of 8% per annum. Assume a 365-day year.
Instead of a discount, the Finance Director is also evaluating non-recourse factoring. Which of the following is a specific benefit of NON-RECOURSE factoring for AquaHarvest?
CASE 1: AQUAHARVEST LTD
AquaHarvest Ltd is a commercial aquaculture firm farming premium salmon. The company currently allows its wholesale customers 60 days to pay their invoices. However, due to cash flow constraints, the Finance Director is considering offering an early settlement discount of 2% if customers pay within 15 days. AquaHarvest currently finances its working capital using a bank overdraft that charges an interest rate of 8% per annum. Assume a 365-day year.
Instead of a discount, the Finance Director is also evaluating non-recourse factoring. Which of the following is a specific benefit of NON-RECOURSE factoring for AquaHarvest?
Answer options:
AquaHarvest retains full control over its sales ledger administration.
AquaHarvest is protected against bad debts if a wholesale customer defaults.
The factoring arrangement remains completely confidential from customers.
The factor will advance 100% of the invoice value immediately.
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