ACCA Financial Management (F9) Certification Practice Exam

When evaluating the effect of reducing receivable days by offering discounts, which is classified as a benefit?

1. Loss of revenue from discounts

2. Reduction in total receivables

3. Receiving payments faster from clients

4. Increased overhead costs

The correct answer is: Receiving payments faster from clients

One of the main benefits of reducing receivable days by offering discounts is the acceleration of cash inflows. When a business provides discounts for early payment, it incentivizes clients to pay their invoices sooner. This leads to receiving payments faster, which can significantly improve the company's cash flow position. Faster payments allow businesses to reinvest the cash into operations, reduce debt obligations, and take advantage of new opportunities, such as purchasing inventory at a better price or investing in growth initiatives. The focus on cash flow management is crucial for maintaining liquidity and operational stability. By encouraging quicker payments, the business can enhance its working capital and potentially reduce the reliance on external financing. In contrast, while revenue loss from discounts, reduction in total receivables, and increased overhead costs are important factors to consider in this scenario, they do not represent the primary benefit of offering discounts to shorten receivable days. The key advantage lies in the improved cash flow resulting from more timely payments from clients.