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Question

Forums › ACCA Forums › ACCA BT Business and Technology Forums › Question

  • This topic has 0 replies, 1 voice, and was last updated 5 years ago by SyahmieAlhakim.
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  • May 8, 2020 at 8:10 am #570295
    SyahmieAlhakim
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Rajang Sdn Bhd makes annual credit sales of RM 2,000,000. Credit terms are 35
    days, but its debt administration has been poor and the average collection period has
    been 40 days with 0.5% of sales resulting in bad debts which are written off.

    A factor would take on the task of debt administration and credit checking, at an
    annual fee of 2.5% of credit sales. The company would save RM48,000 a year in
    administration costs. The payment period would be 30 days.

    The factor would also provide an advance of 80% of invoiced debts at an interest rate
    of 14%.The company can obtain an overdraft facility to finance its accounts receivable
    at a rate of 11%.

    Should the factor’s service be accepted ? Assume a constant monthly revenue.

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