Bank versus Factor. Wayne Corporation’s factor charges a 4 percent monthly fee. The factor lends Wayne up to 85 percent of receivables purchased for an additional 11 2 percent per month. The monthly...

Bank versus Factor. Wayne Corporation’s factor charges a 4 percent monthly fee. The factor lends Wayne up to 85 percent of receivables purchased for an additional 11 2 percent per month. The monthly credit sales are $350,000. With the factoring arrangement, there is a savings in corporate credit checking costs of $4,200 per month and in bad debts of 3 percent on credit sales.

Trust Bank has offered to lend Wayne up to 85 percent of the receivables, at an interest charge of 2.5 percent per month plus a 5 percent processing charge on receivable lending.

The collection period is 30 days, and Wayne borrows the maximum amount permitted each month. Should Wayne Corporation accept the bank’s offer?