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Factroing : Accounting treatment

Can someone tell me the accounting treatment for a factoring services??

Currently in the cleint sage trial balance it shows as Cr balance say £73000. How should I disclose it in statutory accounts?

thanks

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02nd Sep 2010 19:36

Current creditor?

You really need to check the client's bookkeeping and reconciliations.

Most people don't have the knowledge or time to check the Factors transactions.

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02nd Sep 2010 22:31

Factoring Statements

Agree - short term creditor - is it a recourse agreement?

Are there any Factoring Statements that you could check the figures to?
Just make sure to check - it's the client's actual liability to the Factor ("Funds in Use") that's required rather than the Availability of Funds to the Client (The latter balance is usually the more prominent figure, though... and each Factor has it's own variant terminology)

How has the Factoring been handled in Sage?  Is it set have it up as a separate reconcilable bank account, which can make it easier to check for bookkeeping errors.  That said, there are other ways.

Louise

www.figurate.co.uk
www.happyaccountant.com

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03rd Sep 2010 06:30

Sage?

It doesn't say that Sage is being used.

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03rd Sep 2010 09:27

Sage trial balance

The OP says "Currently in the cleint [sic] sage trial balance it shows..." so, presumably, Sage is being used by either/or OP or the client.

[edit] - thinking about it... setting up a Factoring account as a bank account would work in other packages not just Sage.

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03rd Sep 2010 10:36

Sorry, I didn't see that!

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03rd Sep 2010 13:58

Separate presentation

Assuming that this is the normal with recourse factoring arrangement where the factor "returns" any invoices he cannot collect to the company, what is called "separate presentation" is required in the company's balance sheet.  This means that the factoring of the debts is effectively not reflected in the accounts as such and the advance from the factor is treated as a loan.

Specifically, the trade debtors are shown under current assets in the usual way (the value of sales invoices raised less amounts collected by the factor from customers) and the advance from the factor (the balance of the 90% or whatever of the invoice value that the company has drawn down less the amounts collected by the factor) is shown as a current liability.  The £73,000 is probably the advance, but you will need to check all the figures with the factor's statements.  The factor's charges should be written off to the P&L when billed.

Don't forget to include an appropriate accounting policy for debt factoring in the statutory accounts.

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03rd Sep 2010 19:00

Full Circle..?

If the Factoring Account is set up as a bank account in the bookkeeping software, this would acheive what Euan says, because the Sales Ledger would just be normal (and completely independent of the Factoring agreement). So debtors figures would be stated as usual.

The payments to the Factoring Company in respect of their fees would then go through as a bank-payment against the nominal P&L code for finance charges (or whatever)

Drawdowns from the Factoring Co to the client's own bank account would be treated as bank transfers in the bookkeeping software.

And the Factoring Account in the bookkeeping software would automatically calculate, by default, the net liability due to the Factor: being the drawdowns (payments to the client), plus fees (paid to the Factoring Co) less the amounts paid by the client's debtors.  (That would also be the figure for the short term creditor I meant in my earlier post* which would go under current liabilities) - Separate Presentation achieved by default.

Louise
www.figurate.co.uk
www.happyaccountant.com

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03rd Sep 2010 19:17

Accounting software

 Make a factoring account and a director's current account a bank account does make work easier but most accounting software doesn't categorise them properly. It would be good if accounting software could categorise them as bank accounts but still current liabilities (or, in the case of debit balances on director's loan accounts, current assets.

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04th Sep 2010 11:05

Never mind the book-keeping software

The OP asked about the presentation in statutory accounts.  By all means, have pseudo-bank accounts in the book-keeping software - just post them to creditors in the statutory accounts software.

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05th Dec 2012 17:40

Creditor?

Current or long term?

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04th Sep 2010 14:59

Figurate not OP

I know what the OP said. I was commenting on what Figurate said.

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04th Sep 2010 21:36

Academic...

@Euan MacLennan - The OP asked 2 questions: "Can someone tell me the accounting treatment for a factoring services??" and "How should I disclose it in statutory accounts?"
which I took to mean: one about general accounting and one about the statutory accounts.

In any case, it's academic since the OP has posted another, very similar, question where he asks about the "full accounting treatment" and implies he means bookkeeping, especially as he then goes on to answer it himself...
http://www.accountingweb.co.uk/anyanswers/accounting-treatment-debt-factoring

How bizarre.

Louise.

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GREAT

I have only just come across this and @Figurate your comments have helped me! Many thanks. You are an angel! 

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