Business Studies

Debt Factoring

Debt Factoring 

a business sells it's debt to a debt facotry, they give 80-90% upfront, the rest is given once it's been collected from the debtors minus a small fee. 

Advantages 

  • improves cashflow 
  • reduces hassle of chasing payment 

Disadvantages 

  • Not good for overall profit
  • reduces revenue received from sales 
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Margin Of Safety

MARGIN OF SAFETY 

Actual level of output - breakeven output 

A larger margin of safety is better since the business' sales have to decrease further in order to make a loss. 

FACTORS

  • selling price - increases, break even point decreases making margin of safety larger 
  • variable cost- increases, break even point increases making margin of safety smaller
  • Fixed cost- increases, break even point increases making margin of safety smaller
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