Many banks and other financial institutions offer factoring, invoice discounting, and other invoice based lending facilities together with claims that this also takes care of the sales ledger and credit control functions so the client (borrower) no longer needs to worry about this.
Our experience is quite the reverse since the client needs to continue to keep track of which customers have, and have not, paid in order to chase debts passed back to them by the lender/ factor when these debts are beyond terms, and to keep track of how much they owe the lender/ factor at any time.
Our suggested approach is that you:
- Create a new bank account in your application for the loan from the factoring institution – let’s call it the ‘factoring bank account’;
- Treat any monies drawn down as a bank transfer from the factoring bank account to the normal business current account;
- Treat any customer payments made to the factoring institution as receipts into the factoring bank account – the factor will normally provide you with a regular schedule of who has paid and how much;
- Treat the factoring charges as bank charges to the factoring bank account, and the discount rate as interest paid on that account.
In this way you can still run an Aged Debtors report to show which customers still owe you money, and the factoring bank account will be the net of monies you have borrowed, plus charges and interest, less what has been paid off by your customers, which is of course, the current value of what you owe the factor.
The system has been designed to allow you to work with factors – if your bank or service provider does not appear on the list then we shall be very happy to speak with them on your behalf to arrange integration.
Set up comprises two easy steps:
1. enter your factoring account details on the ‘Factoring’ tab in the ‘Settings’ screen, which can include uploading an image to ‘print’ on customer invoices where required by the factor, and whether sent physically or electronically, advising the customer of the debt assignment;
2. update the customer record with their individual factoring reference.
On invoice generation, printed or electronic, the application also produces a text file in an appropriate format to be exported / imported to the factor’s system.