Pips Limited is considering offering a cash settlement discount to its customers.

Currently its annual credit sales are $10m and its normal payment terms are 90 days.

Customers will be able to take a 2% discount for payments after 10 days.

Pips anticipates that sales will increase by 10% after the discount offer and approximately 20% of customers will take the discount.

After the offer bad debt will reduce from 2.5% of sales to 1% of sales.

Pips has a CS ratio of 40%.

Currently Pips has an overdraft on which it is paying 10% interest.