Current price is to factor all receivables immediately at a 2% discount. What is the effective cost of borrowing in this case?

The effective cost of borrowing in this scenario would be 2% per month. This is calculated by taking the discount percentage (2%) and multiplying it by the average collection period (34 days). By factoring all receivables immediately at a 2% discount, your firm would be able to access funds sooner than if you were to wait for payment—in turn allowing for quicker investments or other purchases that could benefit your bottom line.

This rate may seem high, but given the assumption that default is extremely unlikely; it can actually provide a cost-effective form of capital compared to traditional loans from banks or other lenders. Additionally, as long as accounts are kept up-to-date then no additional fees will be incurred which further helps to reduce costs associated with this type of financial arrangement. In conclusion, while there may be more suitable solutions depending on one’s individual needs; utilizing an immediate discount on receivables can offer an attractive solution if cash flow needs are pressing and default risk is low.