How to account for factoring?
When the company sells its accounts receivable, the factoring company normally transfers ownership and also the risk that may be associated with these accounts receivable. As a result, the accounts receivable should normally be removed from our balance sheet.
Step 1: Sale of goods on credit
You sell goods on credit for SEK 100,000 including VAT. To record this:
- Increase accounts receivable (account number 1510) by SEK 100,000.
- Increase sales revenue (account number 3010) by SEK 100,000.
Step 2: Sale of the receivable to the factoring company
You sell the accounts receivable to the factoring company for a factoring fee of 5% of the invoice amount. You receive 95% of the invoice amount from the factoring company, which is deposited in your checking account (SEK 95,000). Record this as follows:
- Increase the checking account (account number 19XX) by SEK 95,000.
- Increase factoring income (account number 39XX) by SEK 100,000 (you record the full amount of the sale and then deduct the factoring fee).
Step 3: Accounting for the factoring fee
You need to account for the 5% factoring fee, which is equivalent to SEK 5,000. Record this as a cost:
- Increase the cost account (e.g. "Financial costs" or "Other operating costs") by 5,000.
- Reduce factoring income (account number 39XX) by SEK 5,000.
These accounts reflect the sale of accounts receivable, the factoring fee and the net profit you receive after the fee. Adjust the account numbers according to your company's system and carefully follow the accounting rules. If in doubt, consult an accountant or accounting expert.