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Factoring of debtors

SupportNoteGuy's avatar
MYOB Staff
9 years ago

This article describes a way you can show the purchasing of the debtors and payments in your company file.


This article is provided for guidance only, and might not be suitable for your business requirements. If you need clarification or additional information, check with your accounting advisor or post your question below.


Let's look at the following example:


  • Company ABC has $10,000 worth of debtors that will be factored.
  • Company XYZ will purchase these debtors, and pay Company ABC in two stages: 70% and then 25%, the remaining 5% being the charge.
  • ABC Ltd will need to close the individual debtors that are in their debtor's ledger and allocate them to the one Factoring entity's account.

Using the above example, we'll set up the factoring accounts, then close off the debtors to be factored.



Task 1 - Set up the factoring accounts


Company ABC needs to set up an account with Bank privileges in the ASSET section of the chart of accounts:


  1. Go to the Accounts command centre and click Account List.
  2. Click the Asset tab then click New.
  3. Select Bank in the Account Type drop-down menu. In BusinessBasics select the Detail Account [Postable] option.
  4. Give the account a unique number that suits your account list.
  5. Name the account Factoring Cheque Account.
  6. Click OK. Here's an example:


Company ABC also needs to set up an Expense account to show the 5% fee charged by the Factoring Entity:


  1. Go to the Accounts command centre and click Account List.
  2. Click the Expense tab then click New.
  3. Give the account a unique number that suits your account list.
  4. Name the account Factoring Charge.
  5. Click OK. Here's an example:



Task 2 - Close off the debtors to be factored


  1. Go to the Sales command centre and click Receive Payments. In BusinessBasics go to the Command Centres menu and choose Sales then choose Receive Payments.
  2. Select one of the debtors and enter the factored amount for that debtor in the Amount Received and Amount Applied fields as shown in the window below.
  3. At the top left of the window, select the Asset account created in Task 1 above. Here's an example:


Note: Use the General Ledger [Summary] report to see the total value of the factored debtors outstanding. These will be shown in the Debit column of the report.



To record the payment from the factoring entity


When Company XYZ pays Company ABC the first 70% of the factored debtors, the payment should be entered through the Receive Money window in the Banking command centre. The account selected at the top left should be your cheque account or the account that the payment will be deposited into. The allocation account would be the Factoring Cheque Account set up in Task 1 above. When Company XYZ pays the other 25%, the same procedure would be followed.


Here's an example:



In the General Ledger [Summary] report these payments will be shown on the Credit side. The net amount will be the factoring charge.


Note that theres is no GST in this transaction.



To show the factoring charges


To show the 5% fee charged by the Factoring Entity, enter a transaction through the Spend Money window as shown below. The account in the top left would be the Factoring Cheque Account and the Allocation account would be the expense account (Factoring Charge) created in Task 1 above.


Here's an example:




The charge will be shown on the Credit column of the General Ledger [Summary] report. Once the additional 25% of the factored amount is received, this transaction will close off completely the Factoring Account to a balance of $0, unless there are other factored debts still outstanding in the same account.


The applicable GST tax code is also included within this transaction as Company XYZ would charge GST for their services.

Updated 6 years ago
Version 2.0


  • There are many different ways to factor debts, and gets down to whether there is recourse or no-recourse factoring involved.


    Most factoring is done with the recourse method employed. 


    Which means that the factoring company will advance you 80% of the invoice amount, with the other 20% payable after collection and after their fee, but if they don't get it then you owe them back the money they advanced on that invoice.


    In that situation, you would never be clearing out the customer's invoice until such time as it is actually paid, and therefore you would be creating a liability(credit card account type) account for the 'advance' from the factoring Company.


    Once the customer pays the invoice, this is where payment would be received against.


    The factoring Company has a statement of your account that is available, which is reconciled, just like a bank account/credit card to know 'where you are at'.


    Not all the fees charged by the factoring company will have GST and this will be ascertained from the tax invoice that they generally issue on a monthly basis.


    Also, when the recourse method is involved, you will find that after a certain period, (usually 3 months), the factoring Company will pass the invoice back to you, if non payment has happened.


  • Hi,

    Great article SupportNoteGuy.

    I'm just trying to get my head around how to record our situation...

    In our case the finance company is advances money on the purchase order and then when the customer pays us we reimburse the finance company.


    For example


    PO/Invoice value:  $29,179.88

    The finance company gives us 3 advances

    • Advance 1:   $13,000
    • Advance 2:     $5,000
    • Advance 3:     $6,500

    Total advances       $24,500


    Debtor then pays us when job is complete $29,179.88 (full value of PO/Invoice)

    We remit back to the finance company  $28,369.81 which is the money advanced ($24,500) plus the finance companies interest and charges ($3,869.81)

    The remianing residual  ($810.07)  we bank.


    $24,500 + $3,869.81 + $810.07 = $29,179.88


    How do I record this using the factoring accounts you mention above.






  • Hi,


    I found the above thread helpful but I am still unsure of how to record the advance payment of $75k that the factoring company paid?  Do I need to set this up a liability account? 


    Any help would be much appreciated.