Because of expansion, Khan Enterprises (KE) is in dire need of working capital and is considering factoring as an alternative. A factor, will offer the firm a non-recourse arrangement that will require a 10% reserve for returns and allowances and a 2.5% factoring commission or fee. It will advance the funds at 2.0% above prime.

The companys sales average $36 million with DSO of 50 days. Bad-debt losses average $15,000 a month and the company will further save $4,000 per month by eliminating its credit department.

Which alternative should the company select?

Are there any qualitative factors the company should consider?