I wonder if you could help me, I have been thinking over and over a scenario and can't make up my mind on the situation.
The situation is that I have a client who factor's out his invoices, he is vat registered, I have posted the sales invoices as normal (obviously the vat part going to the sales vat control a/c) but my issue is where to post the cut (20%) that the factoring company take from the total cost of the Invoice.
The Factoring company are vat registered, am I right in thinking that I should post the vat element (it's not showing vat on the invoice), then post the remainder to an expense a/c?
Please someone tell me if i'm thinking correctly, but then should I ask the client to ask for a vat invoice for the amount taken by the factoring company??>..
hopefully somebody else has been in this situation before and will know the answer.
You enter your sales invoices as normal, and you open a bank nominal code for the factoring account. When the factoring co transfer money to the current account, you make a transfer from the factor account to the current account.
The factoring company should give you a daily statement of monies received which you can reconcile against remittance advices and the like. Having said that, you'll need to check on how the factor co works. Youcan then allocate the payment to the relevant sales invoice using the factoring account instead of the current account.
I hope that makes sense, I don't want to waffle too much!
how would the difference between the sales invoices and the amount received from the factoring co be posted?, also there is a vat element, am I right in thinking this would be claimed back on the vat return.
is this definitely factoring or sales invoicing? they are the same with differences, nice to know though.
the sales invoices are raised as normal and the finance company are informed of the total of the invoices incl the vat. they would then make available a % of this total for you to draw down on, in the same way as a loan. you would need a loan account together with your bank current account. when you draw down the money from the sales finance co, you would record this as a transfer from the loan account to the current account (DR bank CR loan a/c).
when the invoices are paid, you would enter the payment received in the loan a/c, as this would be the account they pay into, or where you bank any chqs received and not your current account. (DR loan a/c CR debtors). the finance co will generally tell you who has paid each day so you can check on any remittances you receive etc
I think i confused things, What is happening is the client's Invoices are Factored to a Factoring company, where they are first of all paid 80% of the Invoice total from the factoring co, then a further 20% once customers have paid the sales invoices to the factoring company. I think what I am getting confused about and am unsure of is that, does the factoring company take any further cut off of the money due to my client????? or does the factoring company pay the whole Invoice totals in the end to the my client???,
I have noticed there is a small expense of a factoring fee paid from my client every month. But I'm am trying to see the benefit of the factoring co's and how they work etc, never had any dealings with them till now.
I believe it is Invoice factoring. Well it's called accounts recievable factoring.
I am not 100% sure of the diff. could you explain the difference?
Must admit I'm feel confused.com lol
-- Edited by lor on Tuesday 12th of January 2010 12:48:51 PM
I think this link sums up what happens, and it has made things clearer.
Am I correct to post the interest and charges from the factoring co as an expense, and also to have the amount to be paid held in a factoring bank ac until payment is recieved in the business bank ac and once recieved , dr business bank ac and credit the factoring bank a/c. ould you confimr this would be correct way to do this.
sales finance is where you chase the money whereas factoring is where the bank chases the money for you, in loose terms.
How does the client draw the 80%? Is it all in one go, or as much as required?
The drawdown will be seen as a loan to the company and all charges wil be paid onto this bank account and is an expense, as are other bank charges.
From my experience, the money that comes from the factoring co will be the amount required to pay bills ect in the current account - there will be an available amount to drawdown on, which is the 80% of invoice total. Any amounts you draw down will be DR current account CR factoring bank account. The as the invoices are paid, these will be paid into the factoring bank account, reducing the amount owed to the factoring co.
Does he need the full 80% in one go or does he like to have cash in the bank, as he would be paying interest on the money from the moment he draws upon it. Having said that, it may be thats how this particular system works! Its all in the small print.
