Brainy Ltd has annual, non-seasonal credit sales of R2 600 000. Customers are

expected to pay within 30 days, but in fact have been settling in an average of 42 days.

Brainy Ltd experiences a bad-debt rate of 0.8% of debtors annually. The companys current

overdraft facility is 2.5% above base-rate, which is at present 12%. Unfortunately, the overdraft limit has nearly been reached, and is unlikely to be extended. Brainy Ltd has contacted

Pinky Ltd, a factoring firm, and has been quoted:

a) A factor charge of 1.8% of credit sales (Brainy estimates that this would save

R20 000 administration costs per year)

b) An advance of 75% of invoices at 3% over base-rate