Sally McGregor sells lawn and garden products in bulk to various companies. She extends credit to her customers for 60 days, but often has to wait for months before she receives full payment. She cannot extend her credit limit any more because her business is still in the growing stage and she cannot afford it. Sally is willing to forego a small amount of the money, as long as she gets the rest of the amount immediately. Which of the following steps should she take to resolve her collection problems?
A) Sally should provide significant discounts when her customers pay on time.
B) Sally should consider a "cash only" policy and eliminate credit sales.
C) Sally should penalize her customers for late payment.
D) Sally should consider selling her receivables to a factor.

Question

Quizplus · Accepted Answer

By selling her receivables to a factor, Sally will receive immediate payment for her sales, even if the customer takes longer to pay. While she may have to forgo a small percentage of the total amount, Sally can avoid the cash flow problems and risks associated with extended credit. This is a common solution for businesses that need to improve cash flow and reduce collection problems. Option A is not a sustainable solution and may reduce her profit margins. Option B may lead to a loss of business and revenue, and Option C may damage relationships with customers.

Sally McGregor Sells Lawn and Garden Products in Bulk to Various