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Dear Sir,
Credit sales are 26,500,000. Current trade receivables term is 60 days. Current bad debts are 1% of credit sales. Overdraft fibance interest is 5%.
Factor offer:
1) decrease trade receivables term from 60 to 35 days
2) factor provides an advance at 80% rate, and interest in this case will be 7%
3) factor cost is 0.75%
4) saving in bad debts of 70% as a result
5) saving in admin cost of 50,000Assume there are 360 days in year.
Is the factor’ offer viable?
You can see the way that I deal with factoring by watching the free lecture on the management of receivables.
Was it in the exam? If so then please wait until I am able to see the exam paper.
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