QWERTY Store$$s is a small business that sells a variety of cellphones and electronics. They have

been facing cash flow challenges and fear of default on payments at $3\%$ of the outstanding amounts,

as a result of tardy customers paying their bills, and need to make a decision regarding factoring their

accounts receivable. The owner is considering a factoring arrangement with ABC Factor, a factoring

company that will purchase their outstanding invoices at a discount.

Additional information regarding QWERTY Store$$s:

$$ Total outstanding accounts receivable: R$50,000$

$$ Average invoice amount: R$1,000$

$$ Average collection period $($Days Sales Outstanding$)$: $45$ days

$$ ABC Factor's recourse factoring offer: $90\%$ of the invoice amount will be paid immediately,

and the remaining $10\%$ will be paid when the customer settles the invoice. However, ABC

Factor will charge a factoring fee of $5\%$ on the total invoice amount and interest of $9\%$ p$.$a$.$

on the advances after deducting the commission.

$$ QWERTY Store$$s owner is contemplating whether factoring is a viable solution for their cash

flow issues.

$*$Assume $360$ days a year for calculation purpose.

Required:

a$)$ Determine the factoring fee and interest charged by ABC Factor for the entire outstanding

accounts receivable. $(06)$

b$)$ Calculate the total factoring amount QWERTY Store$$s will receive from ABC Factor if they decide

to go with the factoring arrangement. $(04)$

c$)$ Calculate the total cost of factoring for QWERTY Store$$s if all customers settle their invoices. $(04)$

d$)$ Calculate the effective cost of factoring at an annualised rate, assuming a $360-$day year. $(06)$

e$)$ Analyze five $(5)$ advantages and disadvantages of factoring for QWERTY Store$$s considering

the impact on cash flow, customer relationships and overall business profitability that such a

decision will have. $(10)$

f$)$ Based on your analysis, provide a recommendation to QWERTY Store$$s owner on whether they

should proceed with the factoring arrangement or explore other alternatives to improve their cash

flow situation. $(05$