Joker Feeds, Inc. is considering obtaining funding through advances against receivable. Total annual credit sales are $600,000 terms are net 30 days, and payment is make on the average of 30 days. Western National Bank will advance funds under a pledging arrangement for 13% annual interest. On average, 75% of credit sales will be accpeted as collateral. Commondity Finance offers factoring on a nonrecourse basis for a 1% factoring commissions, charging 1.5% per month on advances and requiring 15% factor's reserve. Under this plan, the firm would factor all accounts and close its credit and collections department, saving $10,000 per year.

(a) What is the effective interest rate and the average amount of funds avaiable under pledging and under factoring?

(b) Which plan do you recommend? why?