Reference no: EM133049006

Question - Cash & Credit Supermarket Inc. currently asks its credit customers to pay by the end of the month after the month of delivery. In practice, customers take rather longer to pay - on average 70 days. Sales revenue amounts to 8 million a year and bad debts to 20,000 a year. The company planned to offer customers a cash discount of 2% for payment within 30 days. Cash & Credit Supermarket estimates that 50% of customers will accept this facility but that the remaining customers, who tend to be slow payers, will not pay until 80 days after the sale. At present the business has an overdraft facility at an interest rate of 12% a year. If the plan goes ahead, bad debts will be reduced to 10,000 a year and there will be savings in credit administration expenses of 6,000 a year. (Use 360 days) How much is the net cost/benefit of the proposed policy?