ACCA Financial Management (F9) Certification Practice Exam

Which of the following aspects must be monitored when evaluating a discount strategy on receivables?

1. Employee satisfaction levels

2. Change in interest rates

3. Impact on overall profit margin

4. Market share trends over competitors

The correct answer is: Impact on overall profit margin

When evaluating a discount strategy on receivables, the impact on overall profit margin is crucial to monitor. Offering discounts can incentivize customers to pay their invoices more quickly, which can improve cash flow and reduce the risk of bad debts. However, it's important to analyze how these discounts affect the profit margins on sales. If the discounts are too steep, they may erode profits, potentially outweighing the benefits of improved cash flow and quicker payments. By closely monitoring this aspect, businesses can ensure that while they may be improving liquidity, they are still maintaining healthy profit levels. A balance must be struck between encouraging sales through discounts and ensuring that profitability is not significantly compromised. Other aspects, while possibly relevant in broader financial discussions, do not directly relate to the effectiveness of a discount strategy on receivables as closely as the effect on profit margin does. For example, employee satisfaction levels may influence long-term productivity but not specifically impact the evaluation of a discount strategy. Similarly, changes in interest rates primarily affect borrowing costs rather than directly influencing the success of a discount strategy on receivables. Lastly, while market share is important, it does not provide the direct financial implications of a discount to receivables the same way profit margin does.