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Rogue Spices Inc

Finance

Rogue Spices Inc. has a Canadian receivables contract for $200,000 due in 270 days. The firm has been approached by a factoring firm that offers to purchase the receivables at a 12% per annum discount plus a 1% charge for a nonrecourse clause. What is the annualized percentage all-in-cost of this factoring alternative?

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Computation of Annualized Cost of Factoring:  
Amount of Discount = Receivables Amount * Discount Rate * Time  
 =200000 * 12% * 270/365  
$17,753.42   
   
Non-recourse fees  1.00%
Non- recourse Fees = Amount of Receivables * Fees  
 = 200000 * 1%  
2000  
   
Total cost of factoring = 17753.42 + 2000  
$19,753.42   
Amount received = 200000 - 19253.42  
$180,246.58   
   
Annualized Cost  = Total Cost of Factoring/ Amount Received * 365/No. of Days  
 = 19253.42/180246.58 * 365/270 * 100  
14.44%  
   
So, annualized cost of factoring is 14.44%

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