Suppose that you need $50,000 immediately to purchase welded steel for a building. You have current receivables in the amount of $67,000. You have contacted a factor in the area that has proposed 2 financing deals.

Which option is better. Please show calculations:

1. The factor will purchase your receivables for 75 percent of their collection value. You will receive 95 percent of the cash immediately. The factor will retain the remaining 5 percent until all receivables are collected, then the remaining money will be paid to you. However, the money being held will be reduced by any amount uncollected at the end of 120 days from the date of the factoring contract.

2. The factor will lend 54,000 discounted at 12 percent interest for 90 days. You must pledge 100 percent of receivables as collateral for the loan. The factor will collect the receivables, applying 100 percent of the amount collected against the $54,000 until it is completely paid.