Accounting treatment for Debt factoring??

Accounting treatment for Debt factoring??

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Can someone tell me the accounting treatment for the debt factoring??

say, XYZ ltd has debtors of £40,000 -- and to help its cash flow position XYZ ltd get its debtors financed from any bank say Lloyds fincance.  What will be the full accounting treatment for this?? Ofcourse, finance charge are there and other expenses are there too.

Look forward to your reply?

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By rksharma1
04th Sep 2010 16:11

Possible Accounting treatment

Accounting Treatment: depends on the agreement

Mind map for this might be like this

    ** Invoice info to Factor

    ** Drawdown available (say 80%)

    ** Customer Payment    

    ** Drawdown available (rest of 20%)

                

1) When invoices are raised in sage:  Dr Debtor (Sage NL - may be 1100 (say))     Cr Sales (4000)

2)Invoice info to supply to Factor

3) When cash advance/ drawdown is received into XYZ Ltd bank (say RBS Bank) 

       Dr - RBS (Sage 1200 or something like that                  Cr Factor Bank  A/c

4) When invoices are paid to Factor

     Dr  Factor Bank A/c                                                       Cr  Debtors

5) At the month end

     enter factoring charges          Dr Factoring charges (watch for VAT here)

                                                      Cr Factor creditor

 

I hope this is the correct treatment...but trust me it is bit complicated. As far as statutory accounts is concerned it needs to be disclosed separately to trade creditors.

thanks

 

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Euan's picture
By Euan MacLennan
05th Sep 2010 17:53

You have already asked this question

Try reading the answers to www.accountingweb.co.uk/anyanswers/factroing-accounting-treatment.

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By Chris Smail
06th Sep 2010 13:29

Go and search

I have already typed out a full reply to this at least twice in the last five years

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