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Faller Company has average trade receivables of $1,050,000 and annual sales of $4.2 million. It is considering the use of factoring given that this would
Faller Company has average trade receivables of $1,050,000 and annual sales of $4.2 million. It is considering the use of factoring given that this would result in a reduction in credit control costs of $150,000 per annum. The factoring house charges a fee of 1.6% of sales. It will provide an advance to the company of 82% of its receivables and will charge interest on this advance of 10% per annum.
Required: Assess whether it is financially beneficial for the company to enter into this factoring arrangement.
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