Factoring: A company sells $125,000 of its accounts receivable to factors at 3 per cent discount. The company's average collection period is one month. What is the dollar cost of the factoring service?

Question

Quizplus · Accepted Answer

The amount of discount is $125,000 x 0.03 = $3,750. This is the cost of factoring service for one month since the average collection period is one month. Therefore, the dollar cost of the factoring service is $3,750.

Factoring: a Company Sells $125,000 of Its Accounts Receivable to Factors