Explain factoring and term loan financing, Financial Management

Assignment Help:

A factoring company has offered a one-year agreement with Glub Ltd to both manage its debtors and advanced 80 per cent of the value of all its invoices immediately a sale is invoiced. Existing invoices will be eligible for an immediate 80 per cent cash payment.

The annual sales on credit of Glub are Rs6M spread evenly through the year and the average delay in payment from the invoice date is at present 80 days. The factoring company is confident of reducing this delay to only 60 days and will pay the remaining 20 per cent of invoice value to Glub immediately on receipt from the customer.

The charge for debtor management will be 1.7 per cent of annual credit turnover payable at the year-end. For advance payment on he invoices a commission of 1 per cent will be charged plus interest applied at 10 per cent per annum on the gross funds advanced.

Glub will be able to save Rs80, 000 during this year in administration costs if the factoring company takes on the debtor management. At the moment it finances its trade credit through an overdraft facility with an interest rate of 11 per cent.

Required

Advise Glub on whether to enter into the agreement. Discuss the relative advantages and disadvantages of overdraft, factoring and term loan financing.


Related Discussions:- Explain factoring and term loan financing

Venture Capital, Difference between venture capital and conventional financ...

Difference between venture capital and conventional financing

Which ratios is potential long term bond investor, Which ratios would a pot...

Which ratios would a potential long-term bond investor be most interested in? Explain. Potential and Current lenders of long-term funds, like banks and bondholders, are interest

Cost of capital, The Nu-Nu Brothers Inc. (NNBI) has the following capital s...

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''''s expected net income

Explain the sharpe performance measure, Explain the concept of the Sharpe p...

Explain the concept of the Sharpe performance measure. Answer:  The Sharpe performance measure abbreviated as SHP is a risk-adjusted performance measure. It is denoted as the mea

What is online futures trading, Question 1: (a) Briefly explain the Ele...

Question 1: (a) Briefly explain the Electronic Data Interchange (EDI), and list the benefits of EDI. (b) List and describe the main components of MACSS. (c) Explain brief

What are factors influenced the shape of the yield curve, What are number o...

What are number of factors that influence the shape of the yield curve? There are some of factors which influence the shape of the yield curve as follows: (1) Expectations

Research and development and marketing costs, a) Product orientated busines...

a) Product orientated businesses tend to be produce products and inward looking that they hope will sell in the marketplace. For example, Sony hoped that its $101,500 audio systems

Explain the book building guidelines, Question 1 Describe the functions...

Question 1 Describe the functions of merchant banking and functions of financial intermediaries Question 2 What do you understand by book building and Green shoe option

Determine the factors which common stockholders consider, What are some of ...

What are some of the factors which common stockholders consider while deciding how much, if any, cash dividends they desire from the corporation in which they have invested? Comm

Explain the asset substitution effect, Question: a. Explain what the de...

Question: a. Explain what the debt overhang problem is (following the lines of Myers 1977) make sure that you specify what the relevant conflict of interest is and what are the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd