Debtors Reduction Methods

What are the three methods of reducing sundry debtors?

• Ignoring outstanding debts

• Offering discounts for early payment, Implementing stricter credit policies, Using debt collection agencies

• Sending gifts to debtors

• Hiring more staff

Explain the concept of factoring in reducing sundry debtors.

• Factoring in reducing sundry debtors helps in estimating the true value of accounts receivable by considering potential bad debts.

• Factoring involves increasing sundry debtors instead of reducing them.

• Factoring in reducing sundry debtors is only applicable to fixed assets.

• Factoring has no impact on estimating bad debts in accounts receivable.

How does discounting help in reducing sundry debtors?

• By imposing penalties for late payment on sundry debtors

• By ignoring outstanding debts from sundry debtors

• By increasing the credit period for sundry debtors

• By offering discounts for early payment, customers are encouraged to pay off their debts quickly, reducing the outstanding amount owed by sundry debtors.

What is the purpose of offering cash discounts to debtors?

• To incentivize early payment and improve cash flow.

• To reduce the likelihood of receiving payments

• To discourage early payment and delay cash flow

• To increase debtors' liabilities

Can factoring be a more effective method than discounting in reducing debtors? Why or why not?

• No, discounting is always the superior method.

• No, factoring is not a legitimate financial strategy.

• Yes, but factoring is too complex for most businesses.

• Yes, factoring can be a more effective method than discounting in reducing debtors.

What are the potential drawbacks of relying too heavily on cash discounts to reduce debtors?

• Discouraging early payments

• Reduced profit margins, encouraging late payments, dependency on discounts

• Increased profit margins

• Independence from discounts

How can a company determine which method of reducing debtors is most suitable for their specific situation?

• By randomly selecting a method

• By flipping a coin to decide

• By analyzing their current financial situation, cash flow projections, debtors aging report, industry benchmarks, and consulting with financial advisors or experts.

• By ignoring the debtors completely

Discuss the importance of managing sundry debtors effectively for a business.

• Maintaining poor relationships with customers leads to financial stability

• Allowing bad debts to accumulate is beneficial for business growth

• Managing sundry debtors has no impact on cash flow

• Managing sundry debtors effectively is crucial for a business as it helps in maintaining a healthy cash flow, reducing bad debts, improving financial stability, and fostering better relationships with customers.

What are some strategies a business can implement to ensure timely collection of debts?

• Change payment terms without notice

• Threaten legal action immediately

• Implement clear payment terms, send reminders, offer discounts, establish follow-up process, consider debt collection agencies.

• Ignore the debts and hope they go away

Explain the impact of reducing sundry debtors on a company's cash flow.

• Reducing sundry debtors decreases cash flow by increasing liquidity and working capital.

• Reducing sundry debtors increases cash flow by improving liquidity and working capital.

• Reducing sundry debtors has no impact on a company's cash flow.

• Reducing sundry debtors leads to a decrease in profits and an increase in expenses.