Delphi plc has recently decided to enter the expanding market for digital radios. The business will manufacture the radios and sell them to small TV and hi-fi specialists, medium sized music stores and large retail chain stores. The new product will be launched next February and predicted sales revenue for the product from each customer group for February and the expected rate of growth for subsequent months are as follows:

Customer type February sales revenue Monthly compound sales revenue growth Credit sales Months

£000 %

TV and hi-fi specialists 20 4 1 Music stores 30 6 2 Retail chain stores 40 8 3 The business is concerned about the financing implications of launching the new product, as it is already experiencing liquidity problems. In addition, it is concerned that the credit control department will find it difficult to cope. This is a new market for the business and there are likely to be many new customers who will have to be investigated for creditworthiness.

Workings should be in £000 and calculations made to one decimal place only.

Required:

(a) Prepare an ageing schedule of the monthly trade receivables balance relating to the new product for each of the first four months of the new product’s life, and comment on the results. The schedule should analyse the trade receivables outstanding according to customer type. It should also indicate, for each customer type, the relevant percentage outstanding in relation to the total amount outstanding for each month.

(b) Identify and discuss the factors that should be taken into account when evaluating the creditworthiness of the new business customers.

Advanced-level exercises AppendixLO1