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Hi John,
Please could you explain me 2 things in this question Part C
A) in case of with Recorse I calculated the saving in bad debts to be 0.6%of 21300 =128
However in the solution it is (0.9-0.6% of the revenue? Why… I know we have to look just the additional savings but reducing bad debts from 0.9 to 0.6 % in its of not additional.Point B) the Change in advance I took as 80% of new receiable of 2042=1634 *(0.07-.03)=65.36
However in solution it’s 2042*0.8*0.02 why?
Can you explain these two points
Many thanks,
NoureenA. They are currently losing 0.9% as bad debts. If they have with-recourse factoring then they will be losing only 0.6%. So there is a saving of the difference.
B. It is 0.8 because it applies to 80% of the receivables. It is 0.02 because the factor is charging 2% more interest that the overdraft rate.
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