Hi there, I've never dealt with factoring before, and I have a potential client who deals with factoring. He is also VAT registered on a cash accounting scheme.
Now I know that VAT cannot be declared until the sales invoice has been paid to the factoring company.
Could you tell me if the following seems correct?
Raise initial sales invoice: Dr Debtors £1000 Cr Sales £1000
Factoring company gives money on invoice Dr Current Account £800 Cr Factoring Loan Account £800
Factoring company receives money from customer and pays remainder of money to customer less fees Dr Current Account £100 Dr Factoring Charges £100 Cr Factoring Loan Account £200
This would then leave the Loan Account with a zero balance.
How would I clear the sales invoices from debtors and declare VAT? What do I debit? Dr ???? Cr Debtors £1000 Cr VAT £166.67
Hi Mark, thanks for that. Going to have a little play with some more figures to get it to sink in! Out of interest, would it be the same if the customer uses Sage or other computerised package? Would I have to match the sales invoice against the two receipts so that it clears the debtors and the VAT is taken into acount.
Sorry, I like using manual journals like you have given me, easier to follow than computer software.
In theory using software should be the same but would depend on how the software processes the journals.
At the end of the day you want to show the correct position which will depend on the factoring agreement.
My journals is just an explanation of how factoring works in general but will depend on the specific agreement as to the form of any accounting entries.
