Factor Financing

• The operation of your business resulted in Sales of $610,000 last year.
• Your year-end AR are $150,000.
• You are considering factoring AR to raise cash to help finance your ventures growth.
• The factoring company imposes 6% discount and charges additional 2% for each expected 15-day average collection period over 40 days.

1. Calculate the dollar amount you would receive from the factoring company for your AR, if your collection period is 40 days or less.
2. Calculate the dollar amount you would receive from the factor for your AR, if your average collection period is 70 days.
3. Show how your answer in Part B would change, if the factoring company charges 8% discount plus additional 1.5% for each expected 10-day average collection period over 40 days. The actual collection period is the same as in Part B.
4. Calculate average collection period, if $610,000 in Sales last year was evenly distributed throughout the year with average $150,000 in AR.
5. Using the results from Part D, and given the original terms stated in Part A of the question, calculate the dollar amount you would receive for your AR from the factoring company.