Accounting for debt factoring
Hi All,
Currently doing accounts for a client who factors their debtors. First time i've dealt with this and i was following the previous accountant's method but the client changed factors in the year and the two factors had different ways of recording the creditor so i'm hoping for some guidance from those of you with more experience.
First debt factor company listed sales less payments to my client less factoring charges as the balance on the creditor, second factor lists debts collected less payments to my client less factor charges. Two methods give two seperate figures and i'm not sure which is the true and fair view so would appreciate some advice.
I will review this with my principal on Friday but want to try to do my own research before then.
Thanks in advance!
Assuming with recourse
In my experience, as Louise says, there are two statements: one should mirror the sales ledger, the other will show advances drawn plus charges, less cash received, this will be the creditor.
You may have to adjust for cash and sales in transit to reconcile the statement to the sales ledger as there is often a day or two lag in processing.
I am assuming it is discrete factoring and the cheques are payable to your client and paid into a trustee account?
Factoring Statements,Recourse Agreements & Separate Presentation
Is it a Recourse agreement (where the Factor "disapproves" debts that are old or uncollectible) or a Non-Recourse agreement?. Recourse agreements are more common, so assuming it's one of those, include the liability to the Factor as a short-term creditor (and show the sales ledger debtors under "current assets" in the usual way - so-called "Seperate Presentation").
You need to check the factoring statements carefully, as you've discovered, different factoring companies lay out their statements in different ways. Factors quite often send two sets of statements/reports (if not more!) for each period, so check that you have all the relevant reports.
Just make sure that you have got the figure for the client's actual liability to the Factor rather than the Availability of Funds to the Client (The latter balance is often the more prominent figure, though... and each Factor has it's own variant terminology). f. The . .
If in doubt about which figure to use, ask the Factor what figure the client would need to repay, if the hypothetically, the client ended the agreement on a particular/year-end date.
Louise
www.figurate.co.uk
www.happyaccountant.com