ANNEXURE I

CASE STUDY OF SUNLIGHT INDUSTRIES LTD.

Sunlight industries ltd. manages its account receivables by its sales and credit
department. The cost of sales ledger administration stands at Rs 9 crore annually. It supplies
chemicals to heavy industries. These chemicals are used as raw material for further use or are
directly sold to industrial units for consumption. There is a good demand for both the types of
uses. For the direct consumers, the company has a credit policy 2!", net #". $ast e%perience of
the company has been that on avg. &"' of the customer avail of the discount while the balance
of the receivables are collected on an avg. () days after the invoice date. Sunlight industries also
has small dealer networ*s that shall the chemicals bad debt of the company are currently !.)' of
total sales.
Sunlight industries finances its investment in debtors through a mi% of ban* credit and
own long term funds in the ratio of +",&" current cost of ban* credit and long term funds are
!2' and !)' respectively.
There has been a consistent rise in the sales of company due to its proactive measures in
cost reduction and maintaining good relations with dealers and customers. The pro-ected sales
for the ne%t year are Rs ."" crore of )"' from last year. /ross profits have been maintain at a
healthy 22' over the years and are e%pected to continue in futures.
0ith escalating cost associated with the in1house management of debtors coupled with
the need to unburden the management with the tas* so as to focus on sales promotion, the 234
of Sunlight Industry e%amine the possibility of outsourcing its factoring service for managing its
receivables. 5e assigns the responsibility to 6nita /uha, the 2F4 of Sunlight. Two proposals the
details of which are given below are available for 6nita7s consideration.
$roposal from 2anban* Factors 8td., The main element of the proposal is,
i. /uaranteed payment within #" day.
ii. 6dvance, ..' and .&' for the recourse and non1recourse arrangement respectively.
iii. 9iscount charge in advance 2!' for recourse and 22' without recourse.
iv. 2ommission, &.)' without recourse and 2.)' with recourse.
$roposal from Indban* Factors,
i. /uaranteed payment within #" days.
ii. 6dvance .&' with recourse and ."' without recourse.
iii. 9iscount charge upfront, without recourse 2!' and with recourse 2"'.
iv. 2ommission upfront, without recourse #.+' and with recourse !..'
The opinion of the chief Marketing manager is that in context of the factoring arrangement his
staff would be able to exclusively focus on sales promotion which would result on additional
sales of Rs 75 crore.
Perform Financial analysis for receivable management alternatives of SUNLIGHT
INDUSTRIES LTD.