Because of expansion, Khan Enterprises (KE) is in dire need of working capital and is considering factoring as an alternative. A factor, will offer the firm a “non-recourse” arrangement that will require a 10% reserve for returns and allowances and a 2.5% factoring commission or fee. It will advance the funds at 2.0% above prime.
The company’s sales average $36 million with DSO of 50 days. Bad-debt losses average $15,000 a month and the company will further save $4,000 per month by eliminating its credit department.

Which alternative should the company select?

Are there any qualitative factors the company should consider?

Answer rating: 100% (QA)

Answer Given information Debtor turnover DSO 50 days Sales 36000000 Bad debt losses per month 15000 Savings per month by eliminating the credit dept 4... View the full answer