2012年ACCA考试《F9财务报告》讲义辅导22

2012年ACCA考试《F9财务报告》讲义辅导22
Problems in collecting debts
　　Despite the best efforts of companies to research the companies to whom they extend credit, problems can, and frequently do, arise. These include disputes over invoices, late payment, deduction of discounts where payment is late, and the troublesome issue of bad debts. Space precludes a detailed examination of debtor finance, so this next section concentrates solely on the frequently examined method of factoring.
　　Factoring � an evaluation
　　Key features
　　Factoring involves raising funds against the security of a company's trade debts, so that cash is received earlier than if the company waited for its credit customers to pay. Three basic services are offered, frequently through subsidiaries of major clearing banks:
　　· sales ledger accounting, involving invoicing and the collecting of debts;
　　· credit insurance, which guarantees against bad debts;
　　· provision of finance, whereby the factor immediately advances about 80% of the value of debts being collected.
　　There are two types of factoring service. Non-recourse factoring is where the factoring company purchases the debts without recourse to the client. This means that if the client�s debtors do not pay what they owe, the factor will not ask for his money back from the client.
　　Recourse factoring, on the other hand, is where the business takes the bad debt risk. With 80% of the value of debtors paid up front (usually electronically into the client�s bank account, by the next working day), the remaining 20% is paid over when either the debtors pay the factor (in the case of recourse factoring), or, when the debt becomes due (non-recourse factoring). Factors usually charge for their services in two ways: administration fees and finance charges. Service fees typically range from 0.5 � 3% of annual turnover. For the finance made available, factors levy a separate charge, similar to that of a bank overdraft.
Advantages
　　· provides faster and more predictable cash flows;
　　· finance provided is linked to sales, in contrast to overdraft limits, which tend to be determined by historical balance sheets;
　　· growth can be financed through sales, rather than having to resort to external funds;
　　· the business can pay its suppliers promptly (perhaps benefiting from discounts) and because they have sufficient cash to pay for stocks, the firm can maintain optimal stock levels;
　　· management can concentrate on managing, rather than chasing debts;
　　· the cost of running a sales ledger department is saved and the company benefits from the expertise (and economies of scale) of the factor in credit control
　　Disadvantages
　　· the interest charge usually costs more than other forms of short-term debt;
　　· the administration fee can be quite high depending on the number of debtors, the volume of business and the complexity of the accounts;
　　· by paying the factor directly, customers will lose some contact with the supplier. Moreover, where disputes over an invoice arise, having the factor in the middle can lead to a confused three-way communication system, which hinders the debt collection process;
　　· traditionally the involvement of a factor was perceived in a negative light (indicating that a company was in financial difficulties), though attitudes are rapidly changing.
　　The question of whether to factor debts is one which Examiners frequently pose (see paper 8, Question 2, June 1999). Attempt Example 2 yourself, before checking the answer.