Xyz Enterprises Is Thinking Of Using Without Recourse Factoring In Managing Its

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?

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