Osmoff systems $($Osmosys$)$ is a small, owner$-$managed business in the information technology sector in

Johannesburg, South Africa. Osmosys$$ credit sales for the year ended $31$ December $2021$ amounted to

approximately R$5$ million, and average accounts receivable days were $60.$ Sales are expected to increase by $20\%$

over the next year. Because of the rapid expansion of its client base, there has been a steady deterioration in

accounts receivable collection and a rapid increase in its overdraft, despite high profits. After repeated concerns

raised about the Osmosys$$ overdraft risks, the bank providing overdraft facility to the business has now refused

to extend the overdraft any further and has suggested that Osmosys factors its accounts receivable or employ an

experienced credit controller, on a part$-$time basis. Osmosys currently has one credit administrator.

The following information is available:

$1.$ If Osmosys employs an experienced credit controller, the cost to the business will increase by R$120000$ per

annum. The credit administrator will continue in the current role, working with the credit controller and the

cost to Osmosys of the credit administrator is expected to be R$72000$ next year. It is anticipated that the

accounts receivable days can then be reduced to $40$ days.

$2.$ A local factoring organisation has offered to factor Osmosys$$ accounts receivable on the following terms:

$$ An advance of $80\%$ of the value of sales invoices $($which Osmosys would fully utilise$).$ The remaining

value of the receivables will be financed with the overdraft facility.

$$ An estimated reduction in accounts receivable days to $35$

$$ An annual administration$/$service fee of $2\mathrm{.}3\%$ of credit sales

$$ Interest charge on advances of $12\%$ per annum

$$ A credit protection charge of $2\%$ of credit sales

$$ The factor will take over the credit management and the credit administration department at Osmosys

will be disbanded and the employees will be absorbed elsewhere within Osmosys.

$3.$ It is anticipated that Osmosys will take advantage of early settlement cash discount. The early settlement

cash discount is available on purchases amounting to $40\%$ of its credit sales. The supplier of Osmosys has

made available the following credit terms:

$2\mathrm{.}5/30$ net $60$

$2/35$ net $60$

$1\mathrm{.}5/40$ net $60$

$4.$ Current overdraft rates are $10\%$ per annum.

$5.$ Assume that there are $365$ days in a year.

$6.$ Assume that Osmosys$$ credit sales and purchases occur close to each other.

Required:

By undertaking a detailed quantitative analysis, determine whether it is financially beneficial for Osmoff Systems to factor

its accounts receivables for the year ended $31$ December $2022,$ as compared to employing a credit controller $($show ALL

calculations$).$