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Hello sir i dont understand this queation. How to find the cost of package of L. Please explain.
L co is considering whether to factor its sales invoice. A factor has offered L co a non recourse package at a cost of 1.5% of sales and an admin fee of $6000 per annum. Bad debts are 2%of sales per annum and sales $1.5m per annum.
What is the cost of the package of L co?
The factor will charge 1.5% x $1.5M = $22,500, plus an admin free of $6,000, so a total of 22,500 + 6,000 = $28,500.
Given that it is non-recourse factoring, the company will save the bad debts and so they will be paying the factor 28,500 but will be saving 2% x 1,500,000.
Have you watched my free lectures on the management of receivables?