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Syarikat AliAhmad is in a shortage of cash to pay its expenses. The company has few...

Syarikat AliAhmad is in a shortage of cash to pay its expenses. The company has few invoices with a total value of RM1.5 million. The CFO suggests factoring its accounts receivables which still have 90days credit term. The factor charges a 1.5% fee, a 10% reserve and interest at 1% per month on advances. What is the maximum loan or advance that the firm can receive from the factor?
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Answer #1

Factoring Fee is = 1.5%

Interest Charge = 1% Monthly

For 90 Days Interest Charge = Monthly Rate * 3 = 3%

Reserve Requirement = 10%

So  maximum loan Available = 100% - ( Factoring Fee + Interest Charge + Reserve Requirement)

= 100% - ( 1.5% + 3% + 10%)

= 85.5%

Amount of loan Available = % loan Available * Value = 85.5% *  RM1.5 million = RM 1.2825 million

Ans : the maximum loan or advance that the firm can receive from the factor = RM 1.2825 million

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