Explain factoring and term loan financing, Financial Management

Assignment Help:

A factoring company has offered a one-year agreement with Glub Ltd to both manage its debtors and advanced 80 per cent of the value of all its invoices immediately a sale is invoiced. Existing invoices will be eligible for an immediate 80 per cent cash payment.

The annual sales on credit of Glub are Rs6M spread evenly through the year and the average delay in payment from the invoice date is at present 80 days. The factoring company is confident of reducing this delay to only 60 days and will pay the remaining 20 per cent of invoice value to Glub immediately on receipt from the customer.

The charge for debtor management will be 1.7 per cent of annual credit turnover payable at the year-end. For advance payment on he invoices a commission of 1 per cent will be charged plus interest applied at 10 per cent per annum on the gross funds advanced.

Glub will be able to save Rs80, 000 during this year in administration costs if the factoring company takes on the debtor management. At the moment it finances its trade credit through an overdraft facility with an interest rate of 11 per cent.

Required

Advise Glub on whether to enter into the agreement. Discuss the relative advantages and disadvantages of overdraft, factoring and term loan financing.


Related Discussions:- Explain factoring and term loan financing

Settlement mechanism, Settlement Mechanism: Nifty index futures and opt...

Settlement Mechanism: Nifty index futures and option contracts are cash settled. All CMs are required to open a separate bank account with NSCCL designated clearing banks. T

Major linen purchase on open account, that the business has far fewer linen...

that the business has far fewer linens than it needs, so he makes a major linen purchase on open account. Which of the following terms refers to the fact that partners Ma and Runni

Convertible bonds, Basics of Convertible Bonds The provision of convers...

Basics of Convertible Bonds The provision of conversion in a corporate bond entitles the bondholder the right to convert the bond into a predetermined number of shares of commo

Explain about the interest payments, Explain about the Interest payments ...

Explain about the Interest payments Debenture interest is generally paid semi-annually however annual payments aren't uncommon.  Usually there are registered debentures on whic

Write out the equation or draw the budget line, You have $21 to spend on pr...

You have $21 to spend on prawns and potatoes. Prawns cost $20 per kilo and potatoes cost $2 per kilo.   (a) Supposing you can buy as much or as little as you want of prawns and

Definition of budgetary control, DEFINITION OF BUDGETARY CONTROL As pe...

DEFINITION OF BUDGETARY CONTROL As per the ICMA, BUDGETARY CONTROL is the establishment of budgets, relating the tasks of executives to the requirements of a policy, and the c

Explain career counselling process, Q. Explain career counselling process? ...

Q. Explain career counselling process? The career counselling process should contain the following elements: a. The employee's should goals, aspirations and expectations wit

Characteristics - nature of financial management, Characteristics - Nature ...

Characteristics - Nature of Financial Management: 1) Financial Planning and Control: Finance is a base for all the business activities. Business Activities should be not on

Calculate the net present value of a purchase of earthmover, Your construct...

Your construction company is evaluating the proposed acquisition of a new earthmover. A consulting company you hired developed the following analysis last year at a cost to you of

Hedging using commodity futures, Hedging Using Commodity Futures Produc...

Hedging Using Commodity Futures Producers of agricultural commodities are faced with price risk and production risk over a period of time and within a marketing year. In case o

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd