A firm that often factors it\'s AR has an agreement with its finance company tha

Question

A firm that often factors it's AR has an agreement with its finance company that requires the firm to maintain a 6% reserve and charges 1% commission on the amount of receivables. The net proceeds would be further reduced at an annual interstate charget of 10% on the money advanced. Assuming a 360-day year, what amount of cash ( rounded to the nearest dollar) will the firm receive from the finance company at the time a 100,000 account that is due in 90 days is turned over to the finance company?

Explanation / Answer

Particulars Amt $ 1 Accounts receivable                           100,000 2 interest @10% on advance for 90 days                                2,500 3 Commission 1%                                1,000 4 Loss on sale of receivables=2+3                                3,500 5 Retention amount @6% of AR                                6,000 6 Cash Received from Factor                             90,500 So the payment received from finance company = $                   90,500.00

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