How to handle Factoring in your Sage BusinessWorks

Transcription

1 How to handle Factoring in your Sage BusinessWorks Generally, factoring is a way for a business to receive immediate cash for their accounts receivables by selling invoices to a factoring company. The business normally receives a percentage of the total invoices immediately from the factoring company. Customers then send their payments to the factoring company instead of the original company. Example: You have made sales totaling $1, and received 80% ($800.00) of that total from the factoring company. The factoring company collects the full amount of the invoices and sends you the remaining 20% less fees. The factoring company charges 10% for fees. If you have a recourse factoring agreement, you are responsible for buying back invoices that aren t paid by your customers after a pre-determined period of time. If you have a non-recourse agreement, your factor completely assumes the risk of non-payment by your customers, regardless of the reason. Using the example described above, the following steps provide a solution for handling this in your Sage BusinessWorks using the non-recourse factoring method. Note: If you have recourse factoring, contact your CPA for advice on how to handle the loss of sale on uncollected receivables. Page 1 of 6

2 This example is for informational purposes only. You should always contact your CPA before proceeding with the steps below Disclaimer: Sage Customer Support does not provide assistance for issues related to third party products or enhancements, hardware, report customizations, state or federal tax-related questions, or specific accounting questions. Please contact your Sage Business Partner, network administrator, or accountant for assistance. 1. Create two new accounts in the General Ledger by selecting GL, Accounts, Maintain Chart of Accounts a. One account would act as a Factoring Account with Account type of Current Asset. b. The second account is for the Factoring Fees and should be defined as Account type of Expenses Page 2 of 6

3 2. In Accounts Receivable, Utilities, Sales Accounts, Maintain create a new sales account for the Factoring Clearing Account created in Step 1a above. 3. Create your invoices in Accounts Receivable totaling $1, in AR, Transactions, Invoices 4. When the 80% funds are received from the factoring company for the invoices, use the CM, Enter Bank Transactions option to post a Deposit for the $ and use your Factoring Clearing Account created in Step 1a above as your offsetting account. (This transaction will debit cash and credit your Factoring Clearing Account for the initial cash advanced by the factoring company) Page 3 of 6

4 5. Post a credit memo to each customer invoice for the full amount of the invoice. 6. Distribute to the Sales Account you created in Step 3 above. (The result of these transactions will post a debit to the Factoring Clearing Account and a credit to the Accounts Receivable for the $1, clearing the Accounts Receivable for the amount of the invoices. Page 4 of 6 7. If Sales Tax was added to the invoice, you will be prompted that the Sales Tax Reporting Has Changed. OK the message and then select the Tax Reporting button. You will need to zero out

5 the amount in the non-taxable field or your Sales Tax Report will be incorrect. 8. When the factoring company collects the full amount of the invoices, they will send you the remaining 20% LESS FEES or $ Use the CM, Enter Bank Transactions option to post a Deposit for $ Distribute the full 20% ($200.00) to the Factoring Account created in Step 1a above and a negative to the Factoring Fees expense account as the offsetting accounts. (This transaction debits cash, credits the Factoring Account and debits the Factoring Fees account) Page 5 of 6

6 Go to GL, Reports, Trial Balance to see the General Ledger Postings listed below: 1. The Cash account has a net amount of the $ which is the $ debit initial amount and the $100 debit for the remaining amount. 2. Accounts Receivable has been cleared with the $1000 debit for the invoice and the $1000 credit for the credit memo 3. The Factoring Account will have a $1000 debit for the credit memo, a credit for the $800 initial payment and a credit of $200 for the remaining payment clearing the Factoring Account with a 0.00 balance. 4. The Fees Expense account will reflect the $100 fees charged by the Factoring Company Page 6 of 6