On occasion, I would get asked questions regarding Quickbooks and how to account for factored invoices, released reserve, or invoices that were charged back against the reserve. I was never able to help as I had no experience with that software. I did a little research and found some helpful info available at the Quickbooks official site user forum.
On occasion, I would get asked questions regarding Quickbooks and how to account for factored invoices, released reserve, or invoices that were charged back against the reserve. I was never able to help as I had no experience with that software. I did a little research and found some helpful info available at the Quickbooks official site user forum. So if you currently find yourself wonder how to use Quickbooks with an accounts receivable funding company, here is how Chuck Vigeant, an Advanced Certified Pro Advisor, has handled factoring for his clients over the years:
"First remember that you typically will have two new accounts in a factoring situation: one for escrow (which is a portion of the total amount held back by the factoring company), and an operating account - which will show the actual money made available to you for the receivables purchase.
Sometimes the operating account will actually be your own account, and not two separate accounts. Depends upon the factoring company and your arrangement with them.
Once the factoring company purchases the receivables, receive payment against the invoices Your invoices will now show that they are paid in full and if sales taxes are involved they will correctly show as being paid.
Now you will need to create a deposit to represent the amount received in the operating account; while using the cash back window to create a debit to the escrow account. (You could also receive the payments directly to the operating account, and then create a j/e for the escrow amounts, but this is an easy shortcut)
Once the factoring company receives the money from the client, it will then send you a notice for their fees. Create a journal entry to debit the fees, and credit the escrow account.
I have found that this method allows you to reconcile your operating and escrow accounts like any other bank accounts - although I have typically setup the escrow account as an other current asset because the funds are not readily available to me as a true bank account - unless the factoring company tells me I have the minimum necessary escrow amount.
If the factoring company is unable to collect on the account, they will credit back against your escrow account, and your entry will debit A/R for that customer again. What you need to track here is that you do NOT want to pay your sales tax twice, so you will need to make an adjustment to your sales tax report for that period. This is the only part of this operation that does not flow properly through QB using my methods.
I have attached a simple t-account spreadsheet so you can see the flow of dollars.
Another thing to remember, is that the factoring company generally sends the statements, because they are the new owner of the "paper". In some cases you can work with the factoring company on collections operations. Your clients may take a raised eye to someone else collecting money for services you have provided.
Lastly, be very, very cautious of factoring companies. I have seen companies get caught in a vicious circle - because if the clients don't pay on time, the escrow requirements get higher and higher; and when you sell new invoices, you might find out that most of the purchased invoices go towards escrow - instead of your pocket."