Ragha Co makes annual credit sales of $1,500,000. Credit terms are 30 days, but its debt administration has been poor and the average collection period has been 45 days with 1.5% of sales resulting in bad debts which are written off.
A factor would take on the task of debt administration and credit checking, at an annual fee of 2.5% of credit sales. Ragha would save $30,000 a year in administration costs. The payment period would be 30 days.
Factor will also reduce bad debt to 0.5% of the credit sales.


Rubic with export sales of $480m pa has an average collection period of 3 months, bad debts are 2% on sales. 


A factoring company will provide non-recourse factoring for a fee of 5% of revenue. As a result of this, administration savings will be made of £8m p.a. and the credit period will fall to 2 months.


Rubic has a cost of capital of 10%, and the exchange rate is currently 2 $/£.