Explain factoring, and give its advantages and disadvantages. (5 marks)
b) Sossion limited has an annual credit sale of KShs 4 million. The interest rate per annum is 20% the company is considering factoring its debtors. The service fee 2.5% of the amount of debt factored. A 15% reserve is required by the factor. The company has a credit period of 72 days. The interest charges are discounted.
Required: - (assuming 365 days in a year).
i) The amount of funds Sossion limited will receive from the factor. show your workings
ii) Compute the effective annual cost as a percentage. (10 marks)