Factoring

To illustrate how factoring works lets work through an example of a £1,000 + £200 VAT sales invoice

Raising Sales Invoice

Raise the Sales Invoice in the normal way

This produces the following postings:

Sales Invoice  Db Cr
1100 Debtors Control Account (BS) £1,200
2200 Sales Tax Control Account (BS) £200
4000 Equipment Sales (P&L) £1,000
Dimension tags:
Sales Invoice Number £1,200
Customer £1,200
Analysis Dimensions (eg Product) £1,000

 

Invoice submitted for Factoring

If the bank accepts the invoice for factoring they might release 85% ie: £1020.

Details are input through Bank website, but no transactions in Sage Financials.

Draw down to Bank Account

Money is transferred to your Bank Account, so will be picked up in Bank Rec.

In the Bank Rec click on [New Journal]

  • Set the ‘Journal Type’ to ‘Bank Rec Money IN’
  • Enter the Date
  • Click on the  to add your own Journal Item
  • Chose ‘1213 Factoring Bank Account’ as the Ledger Account
  • Leave the Loan field blank

Once you click [Save] the bank transaction is reconciled, and you can view the Journal created under the ‘Bank – BANK REC MONEY IN’ subtab.

This produces the following postings:

Drawing £1,020 from Factoring Account Db Cr
1210 Bank Current Account BS £1,020
1213 Factoring Bank Account £1,020

Customer Pays

Factoring Statement from the Bank will show the customer has paid along with the Factoring fees at 1.2% plus daily ‘Discount Charge’

Use [Pay] to mark the invoice as paid using the correct Bank Account (‘Factoring Bank Account 26822’ or ‘Factoring Bank Account 26823 (EU)’)

This produces the following postings:

Customer Receipt Postings Db Cr
1213 Factoring Bank Account 26822 £1,200
1100 Debtors Control Account (AccountsReceivable_GB) £1,200

Factoring Fees

Factoring fees are calculated monthly by the Bank and split into Factoring Fees which carry VAT and Discount Charges (daily interest)  which are VAT Exempt.

The fees are entered into Sage Financials using the ‘Factoring Fees’ Journal Type:

  • Go to ‘Purchases – FACTORING FEES’
  • Click [New] and enter Date, Reference
  • Select the ‘Bank Account’ for the particular Factoring Account
  • Enter the Factoring Fee net amount with ‘Standard Rate UK’ Tax Code
  • Select ‘Factoring Charges’ for the ‘Ledger Account’
  • If the VAT amount is not correct you can adjust it by entering the correct amount in ‘Amended tax amount’

Click [Save] to save the header and the first line item. Scroll down to see the line items and click [New] to add the second Line Item:

  • Add Reference
  • Add the Discount Charge as Amount
  • Set Tax Code to ‘Exempt UK’
  • Set the ‘Ledger Account’ to ‘Factoring Charges’

Click [Save] and [Post] the Journal

This produces the following Posting

But for the example we are working through with Factoring fees at 1.2% plus VAT and daily ‘Discount Charge’ totalling £8.60 the postings would be:

Factoring Fees Db Cr
1213 Factoring Bank Account 26822 £36.20
2201 Purchase Tax Control Account (VAT on Fees) £4.60
7908 Factoring charge (Factoring fee 1.2%) £23.00
7908 Factoring charge (Discount Charge) £8.60

 

Final Balances

This postings together produce the following balances

Factoring Fees Db Cr
1100 Debtors Control Account (AccountsReceivable_GB) BS zero zero
1210 Bank Current Account BS £1,020
1213 Factoring Bank Account 26822 BS £143.80
2200 Sales Tax Control Account (OutputVAT_GB) BS £200
4000 Equipment Sales P&L £1,000
2201 Purchase Tax Control Account (VAT on Fees) £4.60
7908 Factoring Charges £31.60

 

Factoring Documentation:

A file can be uploaded to the Bank Account ad this can be created using a List View

 

 

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