Cooley Industries needs an additional $500,000, which it plans to obtain through a factoring arrangement. The factor would purchase Cooleys accounts receivables and advance the invoice amount, minus a 2 percent commission, on the invoices purchased each month. Cooley sells on terms of net 30 days. In addition, the factor charges a 12 percent annual interest rate on the total invoice amount, to be deducted in advance.

Funds needed Commission (%) Interest rate Credit period (months) Reduction in expenses Reduction in bad debt losses