Answer Happy

Question 5 You have been given the following information for Hangingin Ltd, a company experiencing cash flow difficulties. Annual sales are expected to be €3,000,000 for this year. Credit control department has confirmed that customers were originally given 30 days credit period; however, this has now extended out to 60 days. Receivables are currently financed using bank overdraft at a rate 13% per annum. Bad debts are currently 0.50% of total credit sales. Greedy Factoring has offered to take over the management of our receivables and has provided the following information for our consideration: Annual Fee 3% 75% of our receivables at 15% interest Advance Savings to be gained by factoring include: €29,000 in administration costs and it is estimated that remaining receivable balances will pay within the agreed 30-day credit term, which will continue to be financed by a bank overdraft. Cash sales from the new website to retail customers accounts for 20% of total annual sales. Required: a) Advise Hangingin Ltd if they should proceed with the factoring services offered by Greedy Factoring (14 marks) b) Explain the term "Over-trading" and briefly explain FOUR indicators of overtrading. (6 marks) (Total 20 marks)