It’s advisable to treat the Factoring Account as a bank account. Treat all withdrawals of funds from the Factor to the business’s own bank account as a bank transfer.
The sales ledger in the bookkeeping should mirror that of the Factor’s Sales ledger. This means entering all sales invoices and customer payments to the relevent customer accounts. The aged debt in the bookkeeping should therefore be the same as the aged debt report that the Factor produces.
Treat the factoring fees and discount charges in a similar way to bank charges.
Overall, the balance on the Factoring account in the bookkeeping should be the same as the liability to the Factor. (It should be possible to check and reconcile this on at least a monthly basis)
Unfortunately, Factors produce statements that are primarily helpful to themselves. Typically, the Factor will send at least two reports at the end of each month – the Sales Ledger (which should be mirrored in the bookkeeping) and the “Client Funds” statement (or “Funds in Use” or generally similar terminology – unfortunately, there is no standardization, so each Factor uses it’s own variant terminolgy).
Some Factors’ statements make it very confusing to see what’s going on. Care needs be taken that the overall “client liability” to the Factor is the figure that is being reconciled to. With some factoring statements it is easy to confuse the “Client Availability” with the “Client Liability” figure.
