I think I may be going mad or it’s just been a long day. Can someone confirm the following treatment of invoices that have been received via factoring company?
Client raises invoice - invoice is factored (client can then draw against money/invoice) - customer pays the factoring company direct.
My statement/logic;
For the purpose of the debtors balance if the invoice is raised and passed to the factoring company its effectively paid - although the factoring company may demand the invoice value back should a problem arises. Even if the invoice is a week before month end it’s still effectively paid. The closing balance on the factoring account is then represented in the accounts as a debtor as the client has not drawn down all of the available cash. In effect the invoices are separate to the SLCA?
Previous accountant seems to have simply taken the clients debtor balance and not reconciled back the factored invoices.
Many Thanks
Replies (5)
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It has been a few years - so a bit hazy
I ran with invoice factoring in the job before last - so apologies for hazy recall.
I set up an invoice discounting 'bank' account (within Sage at that time), and then each advance from the discounter to my current account was posted as a bank transfer. Dr current account Cr Invoice bank.
The sales ledger was operated as normal. Each time the customers paid us the entry was Cr Sales Ledger and Dr Invoice Bank.
The monthly reconciliation consisted of comparing the sales ledger in our system to what we had reported to the discounter.
Adjustments were for things like 'non notified' invoices, or 'individuals' invoices etc.
Agree with Tom ...
... Sales ledger run as normal, setting up a factoring bank account to deal with debtor receipts and the factoring drawdowns.
You also then expense the factoring charges from the factoring bank account.
No ...
... Debtors is debtors, drawdown is creditor same as bank overdraft. You would only reduce debtors by the amount actually received by the factor from the debtor.
I would disclose the factoring in the accounts.
Effectively the factor is making a loan secured on your debtors, with a typical ltv of 60 - 75%, may be up to 90% depending on the business. The recourse is the fact they will only accept debts of a maximum age as security on the "mortgage".