Cote Biologique Limitee (CBL) is considering factoring its accounts receivable to improve its cash flow. Shortfalls in

Question:

Cote Biologique Limitee (CBL) is considering factoring its to improve its cash flow. Shortfalls in collecting the receivables are met by a short-term revolving The controller has gathered the following data to help her make the decision:
Annual credit sales ...........................................$10,000,000
Average collection period ...................................50 days
Industry average collection period .........................30 days
Average annual bad debt write-offs ....................... $100,000
Revolving financing charge ................. 12%
Factor data:
Advance on ........................... 70%
Collection fee on credit sales ............................... 1.5%
Collection period assumption:
Industry average collection period ........................30 days
Interest rate ................................................... 9%
Annual bad debt write-offs .................................$55,000
Administrative savings ......................................$40,000

Required:
(a) Calculate the cost of CBL continuing to collect its own Calculate the cost of CBL factoring the What would you suggest that CBL do?
(d) Would your decision change if the advance on the receivables was 90% instead of 70%? Accounts Receivable
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