Should business implement the new credit control procedures

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Reference no: EM131437608

Question: H. Rusli Ltd provides a car valet service for car-hire businesses when their cars are returned from hire. Details of the service costs are as follows:

Per car

£ £

Car valet charge 20

Less Variable costs 14

Fixed costs 4 18

Net profit 2

Sales revenue is £10 million a year and is all on credit. The average credit period taken by the car-hire businesses is 45 days, although the terms of credit state that payment should be made within 30 days. Bad debts are currently £100,000 a year. Receivables are financed by a bank overdraft costing 10 per cent a year. The credit control department of H. Rusli Ltd believes it can eliminate bad debts and can reduce the average credit period to 30 days if new credit control procedures are implemented. These will cost £50,000 a year, and are likely to result in a reduction in sales revenue of 5 per cent a year. Should the business implement the new credit control procedures?

Reference no: EM131437608

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