Company KPC has average trade receivables of $580,000 and annual sales of $1.25 million. It is considering the use of factoring given that this would result in a reduction in credit control costs of $92,000 per annum. The factoring house charges a fee of 1.9% of sales. It will provide an advance to the company of 92% of its receivables and will charge interest on this advance of 14% per annum.

Required: Assess whether it is financially beneficial for company KPC to enter into this factoring arrangement.