A small firm has a total credit sale of Kshs 8 million and its average collection period is 80 days. The past experience indicates that bad debt losses are around 1 percent of credit sales. The firm spends about Kshs 120,000 per annum on administering its credit sales. This cost includes salaries of one officer and two clerks who handle credit checking collection etc. telephone and telex charges. These are avoidable costs. A factor is prepared to buy the firm’s receivables. He will charge 2 per cent commission. He will also pay advances against receivables to the firm at an interest rate of 18 percent after withholding 10 percent as reserve. 

What should the firm do?