ACCA FM December 2026: Factoring vs Overdraft - Why Comparing Fees Alone Loses Marks
The answer: net it, don't just compare the fee
In FM factoring questions, the fee is only half the calculation. Marks sit in the interest you save by collecting cash sooner, plus the admin costs you stop paying. Compare fee against total savings, not against zero.
What goes wrong
Working capital management is examined regularly in FM, and receivables finance (factoring, invoice discounting, early settlement discounts) is a favourite because the numbers are easy but the logic is not. Students typically stop after calculating the factor's fee, then recommend rejecting it because "it costs money".
The question is never "does it cost something?" It is "does it cost more than it saves?" That means three things: the reduction in receivables days, the interest at the company's short-term borrowing rate on the cash released, and any in-house credit control costs that disappear.
The other common slip is the days-to-cash conversion. Receivables are sales x days / 365. Use the annual credit sales figure given, not total sales, and use 365 unless the question says otherwise.
Worked example
Credit sales are $12m a year. Receivables days fall from 60 to 40 with a factor. The factor charges 0.8% of sales. The company saves $40,000 of credit control costs. Overdraft interest is 7%.
Wrong answer: "Fee = $96,000. Savings = $40,000. Reject." This ignores the cash released.
Correct answer:
Receivables reduction = $12m x 20/365 = $657,534
Interest saved = $657,534 x 7% = $46,027
Admin saved = $40,000
Total benefit = $86,027
Fee = $96,000
Net cost = $9,973 a year, so on these numbers reject, but only marginally.
That marginal result is where the discussion marks live: the factor may also offer non-recourse protection against bad debts, which could tip the decision.
What to do
1. Always build the table: benefits in one column, costs in the other, net at the bottom. Show every line so method marks are available even if one figure is wrong.
2. Convert days to cash first. Calculate the receivables reduction in dollars before you touch interest.
3. Finish with a recommendation and a non-financial point such as customer relationships, loss of control over collections, or bad debt cover.
Closing
FM rewards method over answers. A clear net-benefit layout earns marks even when the arithmetic wobbles.
Fee versus savings. Always net it.