Which strategy could a business use to effectively manage receivables?
(A) Offering discounts for early payment
(B) Increasing the price of the product
(C) Taking out a short-term loan
(D) Increasing its overdraft - HSC - SSCE Business Studies - Question 8 - 2001 - Paper 1
Question 8
Which strategy could a business use to effectively manage receivables?
(A) Offering discounts for early payment
(B) Increasing the price of the product
(C) Taking... show full transcript
Worked Solution & Example Answer:Which strategy could a business use to effectively manage receivables?
(A) Offering discounts for early payment
(B) Increasing the price of the product
(C) Taking out a short-term loan
(D) Increasing its overdraft - HSC - SSCE Business Studies - Question 8 - 2001 - Paper 1
Step 1
Offering discounts for early payment
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Answer
One effective strategy for managing receivables is to offer discounts for early payments. By incentivizing customers to pay sooner, businesses can improve cash flow and reduce the risk of bad debts. This encourages prompt payment and can lead to better customer relationships.
Step 2
Increasing the price of the product
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Answer
Increasing the price of the product does not directly address the management of receivables. While it can potentially enhance revenue, it may deter customers from purchasing, leading to a decrease in sales and possibly affecting receivable levels negatively.
Step 3
Taking out a short-term loan
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Answer
Taking out a short-term loan can provide immediate cash flow, but it does not directly manage receivables. Instead, it can add to the financial burden and dependency on external funding.
Step 4
Increasing its overdraft
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Answer
Increasing an overdraft is also not a direct strategy for managing receivables. It allows a business to cover temporary cash flow shortages but does not solve the underlying issues related to customer payments and can lead to additional interest costs.
