Problem
Yoyo is a company providing delivery services for the food and beverages sector. Yoyo's management is considering the use of factoring to reduce the cost of credit control by €55,000 per annum. The identified factoring company will charge a fee of 2.5% of sales. It will provide an advance to Yoyo company of 80% of its receivables and charge interest on this advance of 10% per annum.
Assess whether it is financially beneficial for Yoyo to enter this factoring arrangement, considering that it currently has average trade receivables of €350,000 and annual sales of €1.2 million. Show all your workings.