Interest Rates Question 1 If a firm is using a factoring company to collect it accounts receivables there will be fee payable to the factoring company. In addition to the fee they may also make a reserve that is held back against any unpaid accounts receivable. However this is not a part of the fee and the money will be passed on as long as the accounts receivables are paid. The fee in this case is 1.5%, so for every 100 that the factoring firm collects they will pass on 98.50. This is a simple calculation, where there is a fee of 1.5 on an amount of 100 the equivalent interest rate is 1.5%. An alterative that may be acceptable is to look at this in terms of the amount that is being received, which is 98.5, and then calculate 1.5 as a percentage of the amount received, in which case it would be 1.52%. However, the question is phrased to look a the interest that is payable on the invoices, and not the amount received, so this is 1.5% in this case. It may be tempting argue that his is an amount for a month, and as such it should be multiplied out to get an equivalent annual rate, but the fee is the same regardless of the time, it does not increase and only paid the once, do the fee is 1.5% and the equivalent interest rate is 1.5%. The agreement is for the payment af