DAL Ltd is in urgent need of funds and hence decides to discount its invoices worth ₹2 crore which are due in the next 2 months. Blue Ltd factor is ready to make a payment of 80% of the invoice to the company at flat @ 2

CS Professional · Corporate Funding & Listings in Stock Exchanges · PYQS · June 2024
DAL Ltd is in urgent need of funds and hence decides to discount its invoices worth ₹2 crore which are due in the next 2 months. Blue Ltd factor is ready to make a payment of 80% of the invoice to the company at flat @ 2% discount rate for the first 30 days and @ 3% discount for 60 days on the full invoice value. Calculate the factoring cost / fee for DAL Ltd for 60 days.

Answer & Explanation:

Answer 2A(ii) Invoice Amount = ₹2 Crore Amount that can be received from Blue Ltd. as advance = 80% of ₹2 Crore = ₹1.6 Crore Quoted discount rate: 2% flat discount Rate for the first 30 days and at 3% flat discount rate for next 30 days afterwards (Assuming factoring is allowed @ 3% discount for next 30 days) The fee on ₹2 Crore invoice if it is paid in 60 days would be: First 30 days = ₹2 Crore x 2% = ₹4 Lakh The next 30 days = ₹2 Crore x 3% = ₹6 Lakh Total factoring cost / fee for DAL Ltd. = ₹10 lakh

Topics: Working Capital Management

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