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