Slovenia Ltd has debtors' balances which average $200 000 on most trading days of the year. If Slovenia Ltd could reduce that balance by half, it believes it could increase its stock, sales and profitability. The financial manager says annual profitability will rise by $75 000. Slovenia Ltd is afraid to exert too much pressure on its debtors for fear of losing customers.
a. How could Slovenia Ltd encourage its customers to pay earlier?
b. If Slovenia Ltd's debtor management strategies result in average debtors reducing to $100 000, how would this lead to increases in sales and profitability?