Lifestyle International, a wholesales company in India, is looking to get a loan using its accounts receivable as collateral. The firm’s credit extension is net-30-day credit. The amounts that are owed Lifestyle by its main clients, the average for each account, and the average payment period from each client are shown in the following table.

a. If the bank accepts all accounts that can be collected in 40 days or less as long as the customer has a history of paying within 40 days, which accounts will be acceptable? What is the total amount of accounts receivable collateral?  Accounts receivable that have an average age greater than the customer’s average payments period are also excluded.

b. In addition to the conditions in part a, the bank recognizes that 8% of credit sales will be lost to returns and allowances. Also the bank will lend only 85% of the acceptable collateral (after adjusting for returns and allowances). What level of funds would be made available through this lending source?

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Customer Titan Company Shoppers Stop United Colors of Benetton India Future Retail Puma Sports India Marks and Spencer Reliance India Kewel Kiran Clothing Aditya Birla Retail Provogue India Ltd. Pantaloons Retail Reliance Retail Account receivable (INR, *) 300,000 420,000 100,000 80,000 55,000 22,000 150,000 220,000 44,000 85,000 50,000 Average age of account 30 days 25 40 30 27 55 60 25 35 20 65 Average payment period of customer 35 days 50 60 35 40 50 65 30 40 30 70