What is the yearly cost of factoring net of credit control

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Question - XYZ enterprises is thinking of using 'without recourse factoring' in managing its trade receivables. Right now, its outstanding balance on trade receivables is $180,000 while revenue on the annual sales is $1,095,000. But it expects the amount of sales and trade receivables to go on for a year and that the use of the factoring will help cut the credit control expenses by $20,000 p.a.

If the factoring company will be paid 2.5% of all invoiced sales and will offer an advance of 90% of the invoiced sales with an interest rate of 12% p.a., what is the yearly cost of factoring net of credit control cost savings?

Reference no: EM132190341

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