accept , discount, against, dishonoured, attached , hypothecation, credit, draw, ownership

A、Why don’t consult with your manager

B、Why not to consult with your manager

C、Why not consult with your manager

Counter-offer

Joe, the representative of the buyer, is at Mr．Liang's office, discussing the offer with Mr．Liang.

Joe: Mr．Li, Thank you for your prompt offer．I have studied your offer carefully and consulted our home office．After investigating and comparing, we found that your price is about 5 percent higher than those offered by European Suppliers.

Liang: I hope you also should consider the quality of the goods as well．I'm sure you know very well that our product is made of pure silk．This, of course, increases the cost but promises the superior quality.

Joe: I will agree with you about the importance of quality．But 5 percent is a big difference which we can't not accept because that will leave us little benefit in the intense competition on the world market.

Hang: We can give you a 2 percent discount if your quantity can be adjusted up to 10 000 pieces．And we have confidence that even your selective customers will be satisfied with the fashionable design and superb quality of our goods.

Joe: I am afraid 2 percent is not enough for us to open a new market for your products．We believe 4 percent at least will make your product more competitive.

Liang: I'm afraid we can't give 4 percent reduction by all means．Considering you are a new customer, a 3 percent reduction is really the best we can do.

Joe: Well, Mr．Li, does this price include seaworthy packing？

Liang: The outer packing is for container transportation．That is the usual practice.

Joe: How long will this offer be valid？

Liang: Within one week.

Joe: I'll try to persuade our head office to accept the price with 3 percent discount and inform you of the answer at an early date.

Hang: We will await your good reply.

From a different supplier, Nesud Co purchases $2·4 million per year of Component K at a price of $5 per component. Consumption of Component K can be assumed to be at a constant rate throughout the year. The company orders components at the start of each month in order to meet demand and the cost of placing each order is $248·44. The holding cost for Component K is $1·06 per unit per year.

The finance director of Nesud Co is concerned that approximately 1% of credit sales turn into irrecoverable debts. In addition, she has been advised that customers of the company take an average of 65 days to settle their accounts, even though Nesud Co requires settlement within 40 days.

Nesud Co finances working capital from an overdraft costing 4% per year. Assume there are 360 days in a year.

Required:

(a) Evaluate whether Nesud Co should accept the early settlement discount offered by its supplier. (4 marks)

(b) Evaluate whether Nesud Co should adopt an economic order quantity approach to ordering Component K. (6 marks)

(c) Critically discuss how Nesud Co could improve the management of its trade receivables. (10 marks)