The following information has been extracted from the financial statements of Rowett:

Powell, a factoring company, has offered to take over the debt administration and credit control of Rowett on a non-recourse basis for an annual fee of 2 per cent of sales. This would save Rowett c160 000 per year in administration costs and reduce bad debts from 0.5 per cent of sales to nil. Powell would educe trade receivables days to 40 days, and would advance 75 per cent of invoiced debts at an interest rate of 10 per cent.
Rowett finances working capital from an overdraft at 8 per cent.

(a) Calculate the length of the cash conversion cycle of Rowett and discuss its significance to the company.

(b) Discuss ways in which Rowett could improve the management of its receivables.

(c) Using the information given, assess whether Rowett should accept the factoring service offered by Powell. What use should the company make of any finance provided by the factor?

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Turnover Cost of sales: Raw materials Labour Income statement extracts Gross profit Administration/distribution Operating profit 000 000 12.000 5800 3060 8860 3140 1680 1460