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BluJay Aviation has allowed their clients to pay 30-60 days after services have been given. This...

BluJay Aviation has allowed their clients to pay 30-60 days after services have been given. This too often causes their cash flow from operating activities to be negative, even though they are earning a profit. The economy has also made them nervous about collecting since a few businesses that use their services, especially the realtors, may not stay in business. Choose two options they might try to improve their cash flow and also advise them about the valuation of their accounts receivable.

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Expert Solution

To improve the cash flow from operating activites, Bluejay Aviation has to focus on mainly these foresaid points

1. Reducing DCP (Debtor Collection Period)

Currently, Bluejay Aviation is giving 30-60 days credit period to their clients. Generally in this specific sector or industry, Charges for services to be rendered are collected before providing the services. Hence the period for collecting debt should be reduced drastically. However its quite possible that reducing the credit period from 30-60 days to 0 days will hamper the business activity in huge manner so it should be reduced in a diminishing manner and ultimately to 0 days.

2 Attracting New customers/clients

As their main clients are in danger and may not be in a business for a very long time as they does not seem to be going concern entity by the industry which is quite dangerous position for the Bluejay aviations. To tackle this specific problem they should be focusing on attracting new clients using various marketing techniques such as Affordable Prices, better Favilities, advertisements etc whoch will eventually reduce the threat which company is currently facing.

Advice regarding Valuation of accounts receivable

Accounts receivable should only be valued by considering the credit worthiness of the person or entity from which amount is due. Current clients of Bluejay Aviations are not in a good position and they could leave the market which undermines their credit worthiness. Hence proper provisons or allowance should be made for them giving regards to their credit worthiness and committments and past experience.

ekkarill92 answered 1 year ago
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