How do I track the purchase of my outstanding receivables by an invoice factoring company? If your company sells outstanding receivables to a factor in exchange for immediate working capital, how do you account for the transaction? In other words, you are obtaining an advance from the accounts receivable finance company for a percentage of the outstanding invoiced amount. The factoring company retains a percentage of the receivables that are paid in addition to a service fee.
Your customer (account debtor) is required to repay the factoring company’s advance within a certain number of days. In some cases, if the payments are not received within the specified time period, the factor returns the invoices and your company must repay the advance, including all fees. So with all this in mind, how best to input these factoring transactions into the accounting package?
Intuit, the makers of Quickbooks™ has answered this question in their small business knowledge base. Here is a step by step answer to this question.