33:010:272 Lecture Notes - Lecture 10: Accounts Receivable, Accrued Interest
28 Oct 2016
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Document Summary
A factor is a financing agency that purchases accounts receivable. In effect that factor gives cash up front and charges interest (and fee) for the service. For example, suppose the factor pays for ,000 receivable paid at the end of the month (2% fee). 980 dr service fee 20 cr accounts receivable 1000. For factor dr accounts receivable 1000 cr service revenue 20 cr cash. Credit card companies are the largest factors around. They charge 2-6% interest which is very high for one month. The fees are high because the credit card company bears all the default risk. The key difference between notes receivable and accounts receivable is that notes receivable carry interest. The interest is stated on an annual basis but notes typically have a duration of less than a year. The usual convention is that there are 30 days in the month, and 12 months in a year yielding 360 days in a year.
