Clothing Unlimited decided to apply for a $100,000 loan from its local bank. Clothing Unlimited will provide accounts receivable as collateral. The bank’s policy states that accounts normally paid within 30 days of the end of the credit period may be accepted as collateral. However, the age of the account is not allowed to exceed the customer’s average payment period. The accounts receivable, average age of accounts, and average payment period of customers are summarized in the table below. Clothing Unlimited offers credit terms of net 30 days.

a. What is the amount of collateral that meets the bank’s policy?
b. To encourage more business, the bank reduced its accounts receivable collateral by 10%. Calculate the amount of accounts receivable now available as collateral.
c. How much will Clothing Unlimited be able to borrow if the bank is willing to advance 80% of the acceptable collateral?

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Customer A B C D E F G H Accounts receivable $5,000 18,000 9,500 14,000 8,750 4,500 1,500 20,000 Average age of account (days) 20 40 60 18 52 14 10 20 Average payment period of customer (days) 30 45 35 25 45 20 15 45