Search (no subject) L Libi SusanRajan to me 0 minutes agoDetails The finance director of Menendez is trying to improve the company's slack working capital management. Although Menendez's trade terms require settlement within 30 days, its customers take an average of 45 days to pay. In addition, out of total credit sales of 15m per year, the company suffers bad debts of 235,000 annually. It has been suggested that the average settlement period could be reduced if an early settlement discount were offered and the finance director is considering a reduction of 1.5 per cent of the face value of invoice for payment within 30 days. It is expected that 40 per cent of customers would use the discount, but that the average time taken by the remaining customers would not be affected. It is also expected that, if the new credit terms are introduced, bad debts will fall by 60,000 per year and administration costs will fall by 15,000 per year.

(b) Discuss whether Menendez should finance its working capital needs from an overdraft.

(d) Briefly discuss ways in which Menendez could use its trade receivables as a source of finance.