Everything businessmen need to know about factoring

Factoring is a complex of credit and financial services provided to enterprises; the operation of selling the debt rights of an enterprise to another entity - a factor1. Factors (financial agents) are usually banks, investment companies and other credit organizations licensed to carry out this type of activity (providing loans to others at interest).

The term “factoring” is defined by the VAT Law. Quote:

"1.10. Factoring is an operation involving the assignment by a first creditor of the rights of a third party to another creditor with advance or immediate compensation for the value of such debt to the first creditor.”

This definition does not accurately convey the essence of the factoring operation. In particular, if instead of the words sale of debt rights (or sale of receivables, sale of rights of debt claims - all the same) the expression “assignment of rights of debt claims with compensation for the cost of such debt” is used, then such an expression can be understood as a gratuitous service on the part of the factor. After all, “compensation of cost” means 100% compensation, and not partial, for interest, as it actually is. Another thing is selling. A sale is by no means compensation, but a certain negotiated amount, which does not always coincide with the value of the subject of the transaction, but is set below or above its value, depending on who the initiative comes from: the buyer or the seller. In factoring operations, the initiative belongs to the seller, therefore, the terms are dictated by the buyer of the debt - the factor . And, it is quite clear that these conditions will not be in favor of the seller of such debts. As for the assignment, the assignment is not factoring, but rather an assignment. Moreover, the words from the definition “or subsequent compensation” generally make the concept of factoring almost indistinguishable from the concept of assignment.

There are many differences between factoring and assignment. For example, these:

1. The subject of assignment is the actual transfer of debt rights, and the subject of factoring is the financing (lending) of one person by another person in exchange for the latter transferring the monetary claim of this person to another party.
2. Participants in the assignment can be any person, and only banks and other credit, as well as commercial organizations that have a license to carry out activities of this kind can act as a factor.

These are the most striking differences, but not all.

Indeed, the legal essence of obligations under a factoring agreement is the assignment of claims to debtors known to the law of obligations - assignment. However, factoring relationships, which simultaneously combine elements of a loan agreement and a financial services agreement, are much more complex and multifaceted.

Factoring is good because its mechanism involves both lending to the holder of debt rights and settlement services for this client according to the invoices presented to them. Essentially, this is a loan against goods shipped (work performed, services rendered), for the use of which the client pays a percentage stipulated by the factoring agreement. In addition to interest on the loan, the factor charges the client a fee for recording the sales register and some other services provided for in the factoring agreement. Moreover, factoring lending has a two-way nature. After all, the debtor, one might say, also receives a payment loan.

Accounting for factoring operations at the supplier

The supplier keeps records according to the following scheme:

1. Reflects the buyer's receivables: Debit 62 Credit 90.01.1.
2. Accrues VAT on a sales transaction: Debit 90.3 Credit 68.02.
3. After collecting the necessary documents (waybills, invoices) and signing a factoring agreement, the assignment of rights of claims to the factoring company is carried out. This operation is reflected in the debit of account 76 and the credit of account 91.1.
4. Afterwards, the debt in favor of the bank is written off from the buyer: Debit 91.2 Credit 62.
5. As soon as funds are received from the factoring company, an entry is made in debit 51 in the correspondence for credit 76.
6. The supplier reflects the commission to the bank under the factoring agreement by posting Debit 91.2 Credit 76.
7. The commission is subject to VAT, so you need to reflect the tax: Debit 19 Credit 76.
8. And then set for reimbursement: Debit 68.02 Credit 19.03.

If the accounts receivable turned out to be hopeless and the buyer did not repay the debt to the factoring company, then the bank will have to return the transfer (Debit 76 Credit 51 - return of previously transferred funds in the amount of 80-90% of the debt amount), and the buyer will have to make a demand for payment and collect it independently money (Debit 76 “Settlements on claims Credit 76 “Settlements with the bank”).

Example:

The seller shipped goods worth RUB 450,000 to the buyer, who guaranteed payment within the next two months. (VAT 68,644 rubles). The supplier organization entered into an agreement with the bank for a factoring service and transferred the receivables. According to the agreement, the bank pays the seller 90% of the debt amount immediately, and the rest after payment by the buyer. The commission is 0.3% of the total amount.

Postings:

If an organization receives payment in installments, there is a possibility that its debt will be assigned under a factoring agreement. The factoring company can be a credit institution, bank or legal entity.

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Factoring stages

1. Preliminary work . Before concluding a contract, an assessment and analysis of the potential client and his financial capabilities is carried out. The supplier must provide information about buyers, terms of delivery, payment and, of course, cases of violation of the contract, if any have occurred in the past;
2. Documenting . The following must be specified in the agreement for the provision of factoring services:

• Subject of the agreement;
• Rights and obligations of participants;
• Financing procedure;
• Credit limit;
• The procedure and conditions for transferring debt rights to the factor;
• Price of factor services, calculation procedure;
• If necessary, insurance against violation of obligations by the debtor;
• Duration of the contract, as well as other conditions.

1. Factoring transaction control:

• Do all participants fulfill their obligations (in case of violations, a claim is filed);
• Do the assets involved comply with the documented requirements of the factoring company;
• Should the assessment of the client (supplier) or debtor (buyer) be changed?

Accounting with the buyer

When transferring its receivables to a factoring company, the supplier notifies the debtor in writing. After this, the buyer transfers funds for the received material assets to the factor. In order to “transfer” your debt from the seller to the factoring company, you need to make the following posting:

• Debit 60.1 (seller) Credit 60.1 (factor).

Reflect payment using a standard entry:

• Debit 60.1 (factor) Credit 51.

Example:

The organization received goods worth RUB 700,000 from the supplier. (VAT 106,780 rub.) with deferred payment for 3 months. A month later, a notification was received that the organization’s debt was transferred to the bank under a factoring agreement and upon expiration of the term, the debt should be transferred to its account.

Postings:

Documentation of factoring

To conclude a factoring agreement, a certain package of documents is required. The list has much in common with papers for obtaining a loan from a banking organization. Based on the submitted certificates, the bank or factoring organization carefully studies the client and analyzes his financial performance. But in addition to documents regarding the business (accounting statements, certificates of debt status, information about all owners of the enterprise, etc.), the factor must be provided with information about the buyer - the debtor, who is included in the factoring scheme.

If large turnovers are planned, then a banking institution or specialized organization has the right to request an expanded package of documents, for example, account card 62, detailed analyzes of accounts, decoding of warehouse balances, etc.

The factor spends no more than 5 days to make a final decision on the application.

Constituent documents

In relation to constituent documents, only copies are needed, namely:

1. The decision to create an enterprise.
2. Certificate of registration with the tax authorities - TIN.
3. Certificate of registration of the applicant (individual entrepreneur/legal entity).
4. The charter of the enterprise and possible amendments to it.
5. Orders on the appointment of the present manager and accountant of the selling company.
6. Identity cards of the founders, manager and accountant (with registration).

In the case of cooperation with a banking organization where a potential client has an account, some of these documents may not be required. Today, many lenders have the opportunity to obtain the necessary information about partners through the tax office. It is also possible to quickly check a legal entity online through the state register.

Financial statements

The supplier's accounting documents depend on the type of its activity. So, if the company is on a simplified taxation system, it will be necessary to submit a declaration on the payment of UTII (period - last and present year). The general system involves the provision of:

1. Balance sheet (copy).
2. Profit and loss statement (period - last 5 quarters).
3. Payment orders for payment of all taxes (they may not be required, but it’s better to be prepared).
4. Statements of cash flows across accounts in all banking organizations.

Debtors data

To include debtors in the scheme, supply agreements or existing additional contracts are required. These documents must contain the following items:

1. Payment deferment.
2. Payment procedure.

In the absence of these sections, the factoring company will not be able to control the fact of the deferment and the conditions for its provision. To approve the transaction, the factor needs information about completed payments to debtors, about supplies from the accounting department, originals or copies of shipping documents.

It is worth paying close attention to the debt with some debtors, or more precisely, to its terms. A factoring company will not undertake to serve a buyer who has obvious problems with debts. As a rule, priority is given to long-standing and reliable partners of the seller.

Accounting with a factoring company

A factoring company, which is a legal entity, also records operations to receive receivables against the provision of funds (banks have their own accounting system with a separate chart of accounts).

The issuance of funds on account of the assignment of debt is reflected by the entry:

• Debit 58 Credit 76 “Factoring”.

Next, the money is transferred to the seller:

• Debit 76 Credit 51.

Income from a financial investment is recorded in debit 76 of account and credit 91.1. After the debt to the factor is repaid, he writes off the amount of financial security (Debit 91.2 Credit 58) and charges VAT on the amount of remuneration (Debit 91.2 Credit 68 VAT).

The factoring organization entered into an agreement with the selling company for the assignment of receivables in the amount of 592,000 rubles. For her services, she receives 8% of the amount of the buyer’s debt obligation (RUB 47,360).

Types of factoring

There are several classifications of factoring. The main ones:

1. According to information:

• open (the buyer knows about the agreement between the supplier and the factor and makes payment to the latter);
• closed (the buyer does not know about the presence of a factoring company in the transaction; he pays for the goods to the supplier, and the latter already pays the factor).

1. By risk distribution:

• factoring with recourse (used less frequently, it implies that the factor returns unpaid invoices to the supplier and demands repayment of the loan if the debtor violates the contract);
• without recourse (the factoring company assumes all risks and covers everything, even the client’s legal costs caused by debt collection).

1. When the debt arises:

• real (the factoring agreement is concluded after the onset of debt obligations);
• consensual (the debt obligation is assigned in advance).

1. By residency of participants:

• domestic (all participants are in the same country);
• external (aka international factoring).

1. By number of factors:

• direct (one factor is involved in the transaction);
• mutual (two factors).

1. According to the range of services provided:

• broad (conventional) - in addition to financing and debt collection, the factoring company provides accounting, insurance and other customer services;
• narrow (limited) - the list of services is limited to basic functions.

1. By type of document flow:

• electronic (EDI factoring) - using electronic document management;
• traditional.

Factoring with recourse

Factoring is an assignment of receivables in which the supplier sells a product/service to the buyer and receives payment from the factor. In this case, the buyer becomes the latter's debtor.

The factor can be a bank, factoring company or financial agent.

Factoring operation scheme

1. The supplier signs a contract with the factor.
2. The supplier sells a product/service to the buyer.
3. The factor makes the first payment to the supplier (no more than 90% of the delivery cost).
4. The buyer repays the debt to the factor.
5. The factor pays the supplier the balance minus commission.

How to reflect a factoring transaction in accounting

The method of accounting for a factoring transaction depends on the type of agreement. For 2017, two types of factoring are relevant:

• with recourse - a contract with risk for the supplier; if the buyer does not pay the debt, the money received from the factor will have to be returned;
• without recourse—the financial agent takes risks, since in case of non-payment his expenses are not reimbursed.

For accounting purposes, both types of factoring have some differences. For obvious reasons, clients more often enter into transactions without recourse, so we will consider how to reflect the factoring operation under such an agreement.

If you are a supplier

According to Art. 128 of the Civil Code of the Russian Federation, the right of claim is part of the property of the enterprise. For accounting purposes, its sale is considered a disposal of other assets, and the income from the sale is considered other income. Payment of commissions to the factor is classified as operating expenses.

Debit Credit Transaction

• 62 90.1 Made shipment to the buyer.
• 3 68 VAT was charged on sales.
• 51 76 Made the first payment from the factor.
• 76 91.1 Assigned the buyer’s debt to the factor.
• 2 62 The debt was written off from the buyer.
• 76 51 Paid commission to the factor.
• 2 76 Recognized commissions as operating expenses, excluding VAT.
• 3 76 We took into account VAT on commission.
• 76 62 The buyer's remaining debt was written off.
• 51 76 Made the second payment from the factor minus commissions.
• 68 19.3 Accepted for deduction of VAT.

If you are a buyer

Debit Credit Transaction

• 41 60 Posted receipt from the supplier.
• 3 60 Input VAT has been taken into account.
• 68 19.3 Accepted for deduction of VAT.
• 1 60.1 Transferred accounts payable to the factor.
• 1 51 Paid the debt to the factor.

If you are a factor

Debit Credit Transaction

• 58 76.5 Take into account the financial investment (debt for shipment minus commissions).
• 5 51 Transferred the first payment to the supplier.
• 51 76.7 Received payment from the buyer.
• 5 51 Transferred the second payment to the supplier (minus commissions).
• 7 91.1 Income from the transaction was taken into account.
• 2 68 VAT was charged on commissions (from the difference between received and accounted for financing).

Income tax accounting

For a supplier, a commission to a financial agent is a loss that is recognized by the tax authority in full and without limiting deductions (see Article 279 of the Tax Code of the Russian Federation). It is taken into account in non-operating expenses (the fact of payment must be documented and economically justified). Commissions can also be taken into account as other expenses for production and/or sales. They are calculated as follows: 50% of the amount is included in non-operating expenses on the date of assignment, the remaining 50% is recognized after 45 calendar days from the same period.

VAT accounting

The services of a factoring company include VAT (see clause 1 of Article 146 of the Tax Code of the Russian Federation). The tax base for them is the cost of transferred goods/services, which is calculated from their prices, taking into account excise taxes (if the goods are excisable) not including VAT (see Article 40 of the Tax Code of the Russian Federation).

If you are a supplier, you can reimburse the input tax amount, only you must first prove that the received funding was used for the production of goods/services for which VAT is charged, as well as for the purchase of fixed assets, materials, raw materials, for the payment of wages, and for the payment of taxes. In this case, there will be no claims from the fiscal authorities.

How to carry out a factoring operation in 1C: Trade Management, version 11

1. You make the shipment to the buyer as standard, through “Sales of goods/services” and issue an invoice.
2. The assignment of the claim to the agent is formalized with a similar document. The transaction is not subject to tax, so there is no need to issue an invoice.
3. Write off the monetary claim from the buyer (usually posted as “Other expenses”). To do this, create a “Debt Write-off” document, select the debt type “Debttor’s Debt”, select the buyer as the debtor and add a cost item.
4. Make the first payment from the factor as “Payment from the buyer”. You choose your financial agent as the payer, and in the basis of the payment you add the sale for which the assignment was made.
5. For services provided, the agent charges a commission, on which VAT must be paid. Create a new “Receipt of goods and services” and enter an invoice based on it.
6. When you receive the second part of the amount minus commissions, close the balance of the debt with the “Debt Settlement” document. You choose your financial agent as the creditor and debtor. If you fill out the document automatically (using the “Select by balances” button), then on the “Debtor’s Debt” tab you will see the balance of the assignment debt, and on the “Creditor’s Debt” tab - the invoice on which the commission was made.
7. You accept VAT on commissions for deduction; to do this, create a new regulated document in the “Creating Purchase Ledger Entries” journal.

Important! When working with this algorithm, make sure that the factoring agreement is selected correctly in each document.

Factoring in Russia: advantages, disadvantages and prospects

In Russia, factoring operations were officially recognized in 1992. Today, general provisions for the assignment of claims are regulated by the Civil Code of the Russian Federation, Chapter 43, Art. 824–833.

The convenience of factoring is confirmed by the benefits that each participant in the transaction receives.

Supplier Factor Buyer

• No accounts receivable.
• Commission income.
• Payment deferment.
• There are no financial risks.
• Growth of the client base.
• Possibility of payment in installments.
• Fast capital turnover.
• Profitability growth.

Until recently, the main disadvantage of factoring was the cumbersome and not always transparent document flow, which significantly increased the transaction cycle and its costs.

The transition to an electronic EDI factoring system at the beginning of 2020, using the example of cooperation between X5 Retail Group and VTB Factoring, showed 5 advantages of working in it.

1. Automatic verification completely eliminates document falsification.
2. The time for preparing and conducting a transaction has been reduced.
3. Commissions have decreased.
4. Labor costs for document processing have decreased.
5. Shipment of goods and receipt of payment became possible on the same day.

Knowing the rules and features of factoring operations, it is easy to understand whether they are suitable for you or not. However, it should be noted that factoring is ineffective if the schedule of shipments and payments is too rhythmic.

Factoring scheme

Factoring always involves the participation of three parties:

1. Factor (factoring company or bank department);
2. Supplier of goods (client, creditor);
3. Buyer (debtor);

The most common factoring scheme can be outlined in several steps:

• The supplier ships the goods after agreeing with the buyer on a deferred payment (from a week to four months);
• The supplier enters into an agreement with the factoring company and transfers the invoices to it;
• The factor finances the invoices provided, the supplier receives his payment. Typically, the factor pays approximately 90% of the total cost immediately, the remaining 10% is paid after the buyer receives and inspects the goods. Of course, the factoring company takes a commission for services specified in the contract;
• The buyer pays the goods to the factor.

What is factoring

The word “factoring” most likely means nothing to the average person. And not every specialist knows what it is and has not used this service.

Meanwhile, this is an excellent way to improve the company's balance sheet.

Let's imagine a supplier company that sold a product or provided a postpaid service. In Russian realities, this payment is often delayed, and money is needed to launch a new production cycle, pay salaries to employees, etc. There seems to be money, they should be paid, but in fact there is none.

So, factoring is a way to turn debt into real money. The factor (this is a specialized company or bank) buys it.

Types of factoring

Factoring comes in several varieties:

• With regression. The factor buys the right to all payments to the debtor. However, if these amounts cannot be recovered, the client returns the money to the factor company.
• No recourse. The factor assumes the entire risk of non-payment of the debt by the debtor. If he fails to get the money, he suffers losses.

All information about non-current and current assets.

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Reasons for factoring: laws, agreement, work scheme

There is no term “factoring” in domestic legislation; it is borrowed from Western practice. In our country, the concept itself appeared in 1996 with the entry into force of Part II of the Civil Code of the Russian Federation (hereinafter referred to as the Civil Code of the Russian Federation).

It is described in Article 824 as financing against the assignment of a monetary claim. Thus, a factoring agreement is called a financing agreement for the assignment of monetary claims. It is concluded upon provision of statutory documents, accounting. reporting, copies of the company’s agreements with debtors.

The supplier company transfers documentation to the Factor confirming the shipment of goods or provision of services (invoices, delivery notes), and the Factor pays part of their cost. After receiving money from the debtor, he gives the remaining amount minus the commission.

Accounting entries for factoring services

There are no strict regulations for the provision of factoring services.

You can do it as follows:

1. The financing amount is posted on the day of the bank statement as a debit to 51 accounts, a credit to 76 (by order we introduce the sub-item “Settlements with the financial agent” - in the future, when we mention account 76, we will mean it).
2. Income from the assignment of the right of claim is included in the category “Other income”: posting the amount of payment from the Factor (this is 60-90% of receivables) is recorded as a debit to account 76 - credit to 91/1 by the date of payment of financing.
3. The assigned right of claim is written off on the same date: debit for the amount of payment by the Factor on account 91/2 - credit on 62.
4. The payment of remuneration to the Factor is recorded on the basis of the invoice: the amount of the commission excluding VAT is entered on the date of the bank statement as a debit to account 76/Settlements with a financial agent - credit to 51.
5. The costs of paying commissions are recognized: on the basis of the received act and invoice from the financial agent, an entry is made for the amount of this commission without VAT by debit to account 91/2 - credit to 76.
6. VAT is recorded on the commission: by the date of the act and invoice, the VAT amount is debited to account 19 - credit 76.
7. The right of claim for the remaining part of the debt is written off: debit for 76 - credit for 62 by the date of the bank statement.
8. The transfer by the Factor of the remaining part of the assigned monetary claim is recorded: debit for 51 - credit for 76 by the date of the bank statement.
9. The VAT paid to the Factor from the commission is accepted for offset in the budget: debit 68 - credit 19.

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Advantages of factoring

Thanks to factoring, the company’s funds are not frozen in the form of deferred payments, but are constantly working. You can increase sales without fear that the money will not come back and there will be nothing to start a new production cycle. The liquidity of a product or service increases. This allows you to increase assets at a high rate.

When using factoring services, a company can develop solely at the expense of its own resources, without resorting to loans, which require collateral.

A young company with large accounts receivable will most likely not receive a development loan from a bank. But she can get money from Factor.

In addition, the burden of managing accounts receivable is removed from the shoulders of the company's employees and transferred entirely to the Factor.

At the same time, its balance sheet structure and balance sheet indicators are significantly improved.

When is factoring necessary?

The need for factoring is closely related to the growth of world trade, when increasingly long periods of time begin to appear after the shipment of goods and before payment.

The need for factoring may arise in force majeure situations.

The main cases when entrepreneurs resort to it can be outlined as follows:

1. If you urgently need to increase working capital, and through factoring it turns out to be cheaper than through a short-term loan. More often, this reason is relevant for small businesses, for which there are very few accessible and profitable loans in modern Russia;
2. When in order to attract a buyer it is necessary to provide him with convenient payment terms;
3. To work with new customers who are unstable in payment;
4. When delivering from small enterprises to giant corporations, since the latter often work according to inflexible schemes with unchanged payment terms.

Factoring services are not provided:

1. Companies with a large number of customers with current debts;
2. Manufacturers of specialized goods;
3. Companies that do not issue invoices immediately, but after completing certain work;
4. Companies working with subcontractors;
5. Suppliers providing after-sales service.

How to account for factoring or sale of receivables under IFRS?

Factoring is a fairly common form of financing for trading companies. Let's look at an example of the accounting procedure for factoring in accordance with the rules (IFRS) 9 “Financial Instruments”.

Why do you need to sell (assign) receivables?

Many companies regularly sell their accounts receivable to someone else.

There are several reasons for this:

• They need cash and don't want to (or can't) wait for their own customers to pay invoices (shipping).
• They don't want to deal with their customers' credit risk.
• They don't want to hire additional employees to call customers to remind them of deadlines and late payments. In other words, they don't want to worry about collecting accounts receivable.
• They are trying to clean up their financial statements and improve their liquidity ratios.

What is factoring?

In today's business world, factoring accounts receivable or selling accounts receivable at a discount is a common financial management practice.

Here's how it works:

Factoring payment scheme.

1. You (the food manufacturer) sell your products to customers and issue invoices.
2. Since invoices are due in 90 days (if you deal with large retail chains, then the payment terms are even longer), you cannot afford to wait for cash to arrive and sell the receivables to a factor (factoring company). Accounts receivable are sold at a discount, which represents:
   Your fee for receiving the money immediately (interest on the loan provided by the factor),
3. Revenue from the factoring company.
4. Your clients (retailers) pay their invoices directly to the factoring company.

Now the main question:

Should sold receivables be excluded from the financial statements?

It depends on the circumstances.

Essentially, you need to decide whether the conditions for derecognition of the financial asset have been met or not.

IFRS 9 Financial Instruments is very specific about derecognition. Under IFRS 9 it is much easier to recognize an asset than to derecognise it.

For this reason, IFRS 9 contains a large decision tree (paragraph B3.2.1) to help determine whether your asset should be derecognised or not:

Derecognition of financial assets under IFRS 9.

When you sell receivables, you need to evaluate whether you are transferring substantially all the risks and rewards of ownership or not.

Then, if you don't, you need to evaluate whether you maintain control over your accounts receivable or not.

There are many types of factoring agreements with different terms and conditions. There are three main types:

• Factoring without recourse - in this case, the factor buys all receivables from you without the right to return them to you (i.e., if your clients do not pay, then this is the factor's problem).
• Factoring with recourse - in this case, the factor has the right to return bad receivables to you.
• Factoring with limited recourse or factoring with a guarantee (eng. 'factoring with limited recourse') - in this case, you are guaranteed not to incur losses up to a certain amount, and the factor can return receivables only within the framework of this guarantee.

Let's look at an example of how the first two types should be taken into account.

Example of factoring accounting without recourse

ABC is a trading company. Due to a lack of cash, she decides to transfer the receivables to a factoring company for 90% of the nominal value.

The total amount of receivables transferred is CU300,000. The factor has no right to return the receivables to ABC.

How to account for this operation?

ABC transfers all the risks and rewards of the accounts receivable to the factoring company.

As a result, ABC derecognises the receivable in its entirety because the derecognition criteria under IFRS 9 are met.

Accounting entries:

• Debit. Cash: CU 270,000 (300,000 * 90%).
• Debit. Profit and loss - Finance costs (see note below): CU30,000
• Credit. Accounts receivable: CU 300,000

Note. Most of these financing costs are interest, since factoring is a form of factor lending. Therefore, if these expenses are material, you should accrue interest expense and recognize it over the financing period (rather than as a lump sum as shown here).

In this case, if clients do not pay the factor or go bankrupt, it is the factor's problem, not ABC's. This is the biggest advantage of non-recourse factoring.

On the other hand, the discount can be significantly higher than with recourse factoring.

Example of factoring accounting with recourse

Same situation as above. But this time, ABC Company transfers the receivables for 96% of the face amount.

The total amount of receivables transferred is CU300,000. The factor has every right to recover ABC's receivables if they become uncollectible.

How to account for this operation?

ABC retains some of the risks associated with the receivables transferred to the factoring company. The customers' credit risk has not been transferred because the factor has a right of repayment.

As a result, ABC retains the receivables on its balance sheet because the derecognition criteria in IFRS 9 are not met.

The amount received from the factoring company is recognized as a liability.

Accounting entry:

• Debit. Cash: CU 288,000 (300,000 * 96%).
• Debit. Profit and loss - finance costs: CU 12,000
• Credit. Repayment obligation: CU 300,000

If the client goes bankrupt and the factor applies the right of recourse, the following entries must be made:

• Debit. Repayment obligation: CU 10,000 (amount of bad receivables).
• Credit. Cash: CU 10,000

When customers pay a factor, ABC makes the following entries (based on the report provided by the factor):

• Debit. Repayment obligation: CU50,000 (the amount actually collected by the factor).
• Credit. Accounts receivable: CU 50,000

Accounting for factoring with limited recourse

The most common type of factoring falls somewhere between these two extremes described above.

Factors often require a refund guarantee up to a certain amount.

As a result, the factor is not entitled to a full refund of the face amount of the receivable, but only to the extent of the guaranteed amount.

In this case, the company partially retains control over receivables and, when transferring this debt, cannot completely derecognise it.

Factoring or loan

Factoring in 1C:Accounting 8

Factoring is financing against the assignment of a monetary claim. We talk about the procedure for reflecting factoring transactions in accounting and tax accounting and in the 1C: Accounting 8 version 3.0 program in the accounting of the seller and the buyer.

The legal relations of the parties to a factoring agreement (a financing agreement for the assignment of a monetary claim) are regulated by Article 824 of the Civil Code of the Russian Federation.

One party (financial agent) transfers funds to the other party (client) to offset the client's (creditor) monetary claim against a third party (debtor).

Factoring: concept and types

Factoring services are provided by banks or specialized organizations (factors). These services consist in the fact that for a certain amount of remuneration (commission), the factor transfers funds to the client against upcoming payments from buyers. Such financing against the assignment of a monetary claim is called factoring.

Civil legal relations between the factor (financial agent) and the client are regulated by the norms of Chapter 43 of the Civil Code of the Russian Federation “Financing against the assignment of a monetary claim.”

In accordance with Article 824 of the Civil Code of the Russian Federation, under a financing agreement for the assignment of a monetary claim, one party (financial agent) transfers or undertakes to transfer to the other party (client) funds to offset the monetary claim of the client (creditor) to a third party (debtor).

In this case, the monetary claim arises from the provision by the client of goods, the performance of work or the provision of services to a third party, and the client cedes or undertakes to cede this monetary claim to the financial agent.

A monetary claim against a debtor may be assigned by a client to a financial agent also in order to ensure the fulfillment of the client’s obligation to the financial agent.

The obligations of the financial agent under a financing agreement for the assignment of a monetary claim may include maintaining accounting records for the client, as well as providing the client with other financial services related to the monetary claims that are the subject of the assignment.

The subject of the concession for which financing is provided may be (Article 826 of the Civil Code of the Russian Federation):

• a monetary claim for which the payment term has already arrived (existing claim);
• a right to receive funds that will arise in the future (future claim).

The following types of factoring are distinguished:

• classic factoring;
• confidential factoring;
• undocumented factoring;
• recourse factoring;
• non-recourse factoring;
• reverse factoring.

In classical factoring, the supplier (client) receives financing from the factor in exchange for the assignment of a monetary claim to the buyer for goods shipped (services provided). The buyer must be notified of the assignment. If the buyer fails to fulfill his obligation to the factor, the debt is repaid by the client (supplier).

Confidential factoring is a variation of classical factoring. The difference between them is that there is no mandatory notification to the buyer about the assignment of monetary claims to the factor. In this case, a necessary condition is the transfer of funds by the buyer to an account in a bank that provides confidential factoring services.

With undocumented factoring, primary documents confirming shipment do not need to be provided to the factor. All document flow is carried out electronically.

The existence of recourse implies that if the buyer (debtor) refuses to pay the debt, the factor has the right to demand from the client (supplier) the return of the amount of paid financing, taking into account the factoring commission. In this case, the supplier acts as a guarantor to the factoring company. The cost of recourse factoring services is usually significantly lower than non-recourse factoring. That is why it has become most widespread.

With non-recourse factoring, all risks of possible non-fulfillment of obligations by the buyer are borne by the factor. Accordingly, if the buyer (debtor) subsequently refuses to pay the debt, the factor cannot contact the supplier with a demand for its repayment.

Separately, it is necessary to highlight reverse factoring. It is also called "purchase" and "reverse".

It differs from the classic one in that the contract with the factor is concluded not by the supplier, but by the buyer. Accordingly, the commission is paid to the factor by the same factor (unless otherwise provided by the tripartite factoring agreement).

Such contracts are concluded if the purchasing company has a limited opportunity to obtain a deferment, or its period needs to be increased.

Among the advantages of a factoring agreement are the following:

• the buyer receives a deferred payment;
• the supplier (client) receives money faster for shipped goods (work, services);
• the factoring company receives money for its services;
• It is easier to draw up a factoring agreement than to take out a loan.

The main disadvantage of factoring services is that they cost more than a loan.

... in accounting

According to the Chart of Accounts for accounting financial and economic activities of organizations and instructions for its application (approved by order of the Ministry of Finance of Russia dated October 31, 2000 No. 94), factoring transactions are reflected using account 76 “Settlements with various debtors and creditors.”

It should be noted that the current legislation does not contain special rules regulating the reflection of factoring transactions in accounting registers. Accordingly, the procedure for recording these transactions in the company’s accounting records must be reflected in the organization’s accounting policies for accounting purposes.

Currently, the economic literature describes two main points of view regarding how to reflect factoring transactions with a client (supplier).

Factoring: accounting and taxation

During the period of financial and economic crisis, the need of commercial organizations for funds increases, the volume of receivables from counterparties increases, i.e. a so-called non-payment crisis appears. In order to reduce the volume of non-payments and increase working capital, commercial organizations turn to the services of banks and other credit institutions, as well as factoring companies, and enter into financing agreements with them for the assignment of monetary claims. The article discusses issues of accounting and taxation of factoring operations.

Factoring - documents for the bank

Describe the reason for your complaint

Question Good afternoon! We have a factoring agreement, according to which the factoring company (Russian) pays us money for delivery under an agreement with a non-resident immediately after shipment, and the non-resident reimburses them for payment with a deferred payment. According to the documents, we receive a shipment under a supply agreement to a non-resident, and we receive payment according to a factoring agreement from a resident. What documents should be used to process the receipt of sr-tv in accordance with currency legislation (for a bank), what documents are needed for confirmation, and what special codes should be indicated?

Basic accounting entries

The organization's cash flow from the agent is taken into account in the income that occurred on the date of conclusion of the factoring contract. When reflecting manipulations under a non-recourse factoring agreement, several main entries are made, taking into account:

1. rights of claim at the purchase price.
2. the nominal value of all rights (interest, fines...).
3. DT accounts for financial accounting. The implementation of new rights is taken into account. The totality of rights is taken into account, which is calculated in proportion to the amount of the part of the payment and the nominal price.

Money is written off from an off-balance sheet account subject to the queue specified in the initial agreement. The result is attributed to the accounting accounts from the factoring manipulations.

Calculation of basic parameters

It is better to carry out all calculations using a separate sub-account “Calculations under a factoring agreement”. By signing it, the company sells its debt. The asset is disposed of. Therefore, at the transition date, cash flows from:

• debt sales;
• expenses associated with carrying out expense transactions and sales.

If the client does not fulfill the terms of the contract, the factor has the opportunity to make a recovery.

All manipulations are subject to VAT. Banking transactions exempt from VAT are given in Art. 149. Clause 3, in which factoring actions are not indicated. Accounting factoring can be calculated using the 1C: Management program.

When calculating the main parameters, it is necessary to charge VAT on the transaction. There is also a tax on factor remuneration. After collecting the papers, the rights of claim are assigned, and the debt in favor of the agent is written off from the client. An entry is made about this in Debit 51. The supplier designates the commission and does this using the above entries. The commission is also subject to VAT. Therefore the tax is displayed.

Let's consider factoring in accounting using an example. Let's imagine that the seller gave the buyer goods worth 450 thousand rubles. The buyer must deposit the money within 60 days. The company signed an agreement with the agent to provide factoring. According to the agreement, the agent pays the seller 90% of the outstanding debt immediately, and the rest of the money after the buyer pays it. The commission is 0.3 percent.

Factoring: examples, postings

Financing carried out under the assignment of receivables is called factoring.
There are three parties involved in the operation: the factoring company (bank), the lender (supplier), and the borrower (buyer). The lender transfers its receivables to the factoring company and receives 80-90% of the funds for the goods delivered to the borrower. After the borrower repays his obligations to the bank, the supplier will receive the rest of the money, and the bank will receive a commission.

Forfaiting and factoring - differences and similarities

• Next we will talk about how factoring differs from forfeiting:
• One of the main differences is the timing of funding. In the option under consideration, the debt is purchased for several years, and in factoring - up to 6 months.
• The next difference between factoring and forfeiting is that in the second type of transaction the seller does not bear the risks. And with factoring, if the debt cannot be collected, then the responsibility falls on the seller or the factor.
• Forfaiting requires confirmation of the debt with a bill of exchange, while with factoring it is necessary to provide only a document confirming the shipment of the goods.
• The factor pays the seller only part of the debt, and the remaining amount will be transferred to him only after the buyer has fully repaid the debt.
• Factoring can provide insurance, legal and other services. And forfaiting does not imply additional operations.
• Another difference between forfeiting and factoring is that in the first option you can resell receivables, but in factoring there is no such opportunity.
• Factoring does not have a guarantee, while forfaiting implies a third party guarantee.

Similarities and differences between forfeiting and factoring

Factoring and forfeiting have both similarities and differences. Each entrepreneur himself chooses the form of lending that will be more profitable for him.