Saltfleet is a wholesale merchant supplying the construction industry which operates through a number of stores and depots throughout the UK. It has one subsidiary, Irby, which manufactures scaffolding and security fences. The finance director of Saltfleet has been reviewing its working capital management and is considering a number of proposals which he hopes will lead to greater efficiency and effectiveness in this important area:
■ appointing a credit controller to oversee the credit management of the stores and depots;
■ appointing a factoring company to take over the sales administration and trade receivables management of Irby;
■ investing short-term cash surpluses on the London Stock Exchange. The finance director is especially interested in investing in the shares of a small company recently tipped by an investment magazine.
(a) Critically discuss the importance of credit management to a company like Saltfleet, explaining the areas to be addressed by a credit management policy.
(b) Distinguish between factoring and invoice discounting, and explain the benefits which Irby may receive from a factoring company.
(c) Discuss whether Saltfleet should invest short-term cash surpluses on the London Stock Exchange.