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FastPay: Assigning Receivables

FastPay is a company that lends to online ad publishers based on advertising receivables. Suppose that you are running a business that relies on online ad revenues. It typically takes 60 days to collect from your customers and convert receivables into cash. FastPay offers you $150,000 in cash in exchange for the right to collect $155,000 in receivables from a particular customer. You have a bank line of credit that allows you to borrow on a short-term basis at an annual interest rate of 7 percent. Should you borrow on the credit line or accept the offer from Fastpay?

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FastPay offer: ($155,000-$150,000)/$150,000 = ...

Solution Summary

Brief calculations show whether or not FastPay should assign their receivables or take a bank loan.