The Store would like to introduce a system for validating the credit-worthiness of cheques. At present, cheques for amountsgreater than fifty pounds are accepted on the production of proof of address by the customer, but this procedure is not veryeffective as a method of credit control. Two credit control arrangements are under consideration, as follows.

Credit Control/Collection

A member of the accounting team will set up a system whereby returned cheques are listed with the following information: customer's address; number and date of letters sent requesting payment; amount owed; and when the amount owed ispaid. A series of three letters will be sent to the customer requesting payment. If payment is not forthcoming the matter will bereferred to the Small Claim's Court.

Cheque Authorisation

Cheques will be credit-checked by a company called "Get Your Money" for a fixed fee per transaction. The services is similar to that offered by credit card companies, i.e. if a payment is authorised, Quality Shopping will receive the cashregardless of the cheque's subsequent status.

Set out below are the costs associated with each scheme:

Credit Control/Checking

Staff Costs

A part-time Accounts Assistant will be employed for two days a week at a salary of £5,000 per year.

The Accounts Supervisor, who is paid £16,000 per year, will spend 10 per cent of her time supervising this employee.

Employer's salary-related costs will be 11 per cent of salary for both the Accounts Assistant and Supervisor.

Other Costs

Fees per court case are £35. The average number of court cases per month is likely to be 20 and up to 60 per cent of the fees are expected to be recovered.

Stationery costs: £170 per month.

Share of Depreciation: £200 per month.

Share of overheads: £500 per month.

Additional Information

On average the cost of bad cheques is £3,500 per month. It is estimated that the new scheme will recover 80 per cent of this amount per month.

Cheque Authorisation

Charges are determined by the number of cheques authorised and the amount of each cheque. They are as follows:

	Amount	Charge per Cheque
£50 -	£100	£0.50
£100.01 -	£500	£0.75
£500.01 -	£1,500	£1.50
£1,500.01 -	£5,000	£2.00

No authorisation is available for amounts over £5,000.

The Accounts office have produced the following information

	Amount	Number of cheques per month
£100.01 -	£100	1,000
£100.01 -	£500	3,000
£500.01 -	£1,500	525
£1,500.01 -	£5,000	100

No other costs will be incurred for this scheme.

Of the £3,500 written-off each month, 100 per cent is recoverable under this scheme.

a. Which scheme would be of most financial benefit to the Store?

b. What are the non-financial factors to be taken into account when deciding which scheme to implement?