Bustechs standard terms on sales invoices are 30 days, but analysis has shown that on average customers pay on 60 days.

Total sales revenue is $9,000,000 and the company expects irrecoverable receivables of $90,000.

A suggestion has been made to offer a 10% discount to customers paying when ordering (ie 0 days). It is expected that 50% of customers will take advantage of this. Irrecoverable receivables would be expected to fall by $45,000 and administrative savings on credit control would amount to $35,000.

Bustech finances its working capital with a bank overdraft that costs 10% per annum.

a) Calculate the total savings and the total costs, and recommend whether or not the proposal should be considered.

b) Calculate the maximum discount that could be offered to be viable.