Has anyone got any experience of invoice discounting and factoring in terms of how to reconcile the account?
My factoring company take a monthly fee of £450 + VAT every month. And gives me 70% of the invoices uploaded.
The issue I have, is that I sometimes receive funds from my clients and so does the factoring company. So my questions is
- When invoices are paid, to the factor where do I paid this to? I will clear the customer account- But the other side goes where?
- When I receive funds, I send it directly to the factor to pay the invoices. How do I reconcile this?
- When I receive monies from factoring, where do I put it?
Would anyone mind spending a few minutes to go through this with me?
I have created 2 GL accounts one liability account (short term loan) and one bank account.
When the invoices are paid, I clear customer account and credit liability account?
I think what you have going on here are a few different scenarios. As long as I’ve understood correctly, I’ll try and go through them individually.
1. Custom pays factoring company
Let’s keep it simple, you invoice for £100, customer pays the full £100 to the factoring company and you receive £70 of this.
You should treat this the same as you would a merchant account.
Firstly, create a virtual bank account. When the client pays, you end up with three transactions:
- £100.00 into factoring account, tagged to the invoice
- £30.00 paid out of the factoring account tagged to a supplier invoice
- £70.00 paid out, tagged as a transfer to your current account
Resulting balance is zero, and everything should be accounted for.
This article my be of use to you.
2. Customer pays you
I’m guessing that you would normally keep 100% of the invoice balance, in which case you just tag the £100.00 in to the invoice.
If the factoring company received the £100, you’d follow a similar principle as above. However, you’d alter the amounts and the bank accounts to fit your scenario.
3. Monthly invoice
Your supplier invoices you in a monthly basis for the £450.00 and you tag it to their invoice as normal.
Hopefully I’ve understood you correctly, and hopefully that helps.
Thanks for the quick reply. So basically when I raise an invoice, I send it to the factor. The factor will then send me what I can withdraw.
The issue is that I don’t know what was approved and what was not. The factor has rules in place and that some invoices are partially paid and the 70% doesnt apply.
Would it be feasible to create a account called factor and allocate all the payment there, then open a loan account, and all the monies sent and received will net out. The outstanding amount credit/debit can be Journal to asset account. complex I know.
The suggestion was to treat it similarly to a payment processor like PayPal. Create a “merchant” bank account that represents the factoring company, when they send you money (the 70% or whatever) you log that as a transfer from the merchant account to your current account. When your customer pays the invoice you log the money coming in to your current account as payment from a customer and then presumably send the same amount straight to the factor, which would be a transfer the other way.
This leaves a balance in the merchant account equal to the factor’s 30% fee, which you clear by creating a purchase invoice paid out of the merchant account.