Sally McGregor sells lawn and garden products in bulk to companies that do lawn and garden work.She extends credit to her customers for 60 days,but she is worried about cash flow problems.But this is a highly competitive business and most of her competitors also offer credit-some of them for up to 90 days.Sally is also concerned with the cost of billing and collecting money from her customers,some of whom make it a habit of paying late.Which of the following represents the most useful advice to Sally?
A)Sally can reduce her cash flow issues by extending credit for 90 days.
B)Sally would be able to generate more sales and reduce her collection costs by cutting the credit period to 30 days.
C)Sally should consider selling her receivables to a factor, thus allowing her to receive cash more quickly and eliminate the hassles associated with collections.
D)Sally should consider a "cash only" policy and eliminate credit sales. This would eliminate her cash flow problems and free up money and other resources that she now devotes to collecting past-due accounts.

Question

Quizplus · Accepted Answer

By selling her receivables to a factor, Sally can receive cash more quickly and eliminate the hassles associated with collections. This will improve her cash flow and eliminate the need for her to worry about customers paying late. Option A is not recommended as it will extend her credit risk, and Option B might reduce her sales and customer satisfaction. Option D might not be the best option, as credit sales are a common practice among Sally's competitors, and she might lose customers to competitors who offer credit.

Sally McGregor Sells Lawn and Garden Products in Bulk to Companies