ACCA FM September 2026: The Early Settlement Discount Error That Wrecks a 10-Mark Question

The discount goes on credit sales. The factor's fee goes on credit sales. The finance cost goes on receivables. Get those three bases wrong and a 10-mark FM receivables question collapses — and the September/December 2025 examiner's report says that is exactly what happened.

What the SD25 examiner actually reported

The Constant Co question in Section C was worth 10 marks across three parts: evaluate an early settlement discount, evaluate a factor's offer, advise which is financially preferable. The scenario gave $45m of credit sales, $7.5m of trade receivables, bad debts of 2% of credit sales and a 4% short-term finance cost.

The examiner names the single most common error outright: candidates applied the 1.25% settlement discount to the trade receivables balance. It is applied to the value of credit sales on which the discount is taken — 70% x $45m. Others applied it to all credit sales, ignoring that only 70% of customers take it up.

The second cluster of lost marks was pure reading. The scenario said bad debts "would be expected to fall by $225,000 per year." A lot of candidates read that as a fall to $225,000 and showed a benefit of $675,000. In the factoring part the mirror error appeared: "reduce bad debts to 0.5% of credit sales" was read as a reduction by 0.5%, giving $225,000 instead of $675,000.

Third, the finance cost base. Some candidates ran the 4% over credit sales rather than trade receivables. It is receivables that need financing — by definition that is cash not yet in the bank. And on the factor's advance, the cost is not 5% of the advance. You would have funded that money at 4% anyway, so the relevant cost is the incremental 1% on 80% of the new receivables balance.

Wrong answer vs right answer

Wrong: 1.25% x $7,500,000 = $93,750 cost. Set against benefits of $330,000, the discount looks like an easy win.

Right: 1.25% x 70% x $45,000,000 = $393,750 cost. Benefits are the $225,000 bad debt reduction plus the finance saving on receivables falling from $7,500,000 to $4,875,000, i.e. 4% x $2,625,000 = $105,000. Total benefit $330,000.

Costs exceed benefits by $63,750, so the discount is rejected. The factor's offer nets a $60,000 gain and wins. Use the wrong base and you don't just drop the calculation marks — you reach the opposite recommendation and lose the conclusion mark too.

Three things to do before September

1. Label the base in every cell, before you type the number. Discount percentage goes on credit sales taking the discount. Factor's fee goes on credit sales. Finance cost goes on trade receivables. The advance goes on the incremental rate difference. Write "70% x credit sales" in the label — the marker can then award the method mark even if your arithmetic slips.

2. Highlight every "by" and "to" in the scenario first. Those two words moved candidates $450,000 in both directions in the same question. Read the numbers sentence twice before you open the spreadsheet.

3. Pick one method and stay inside it. Either a cost-benefit table, or current total cost versus revised total cost. Both are fully creditworthy. The examiner is explicit that what is not acceptable is combining and confusing the two — that is how candidates end up double-counting bad debts.

The wider picture

FM sits in the 45-55% pass rate band, and the SD25 report is blunt that entire syllabus areas were left unstudied — on the cash management models requirement the examiner found evidence that a lot of candidates had not studied the area at all. Baumol and Miller-Orr are the only two models in the syllabus. That is four marks sitting in plain sight.

Receivables management maths is one line long. Every mark is in what you multiply it by.