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LZip23
Level 1

Account Receivable Factoring For Cash Basis Business

We have some account receivable that we sold to a factoring company. We are Cash Basis in QBO and customer invoicing is done outside of QBO. Factoring company purchased our receivable for $68K and deposited $48K (net of fees of $2K) into our bank account. We will be paying the Factoring company on a weekly basis. What's throwing me off is that we are cash basis and don't have receivables in QBO. What entries do I make in QBO to record the $48K received and the amount taken weekly? Thanks!

3 Comments
john-pero
Community Champion

Account Receivable Factoring For Cash Basis Business

First, because you invoice customers you are not pure Cash basis. 100% Cash Basis prohibits receivablles (or vendor bills) as cashnmeansmcash. Younare using whatbthe IRS refers to, and accepts, as hybrid accounting. 

 

The 48k should be booked against the entire outstanding value of the receivables sold, probably by allocating equally across all customers whose debt was sold. The unpaid balance remains on your books until such time as you zero it out aas bad debt. This trans ction is the same whetehr you are hybrid cash or accrual, just in your cash reporting there was no prior income related to the invoices (before debt sale) and thus no expense due to the writeoff.

 

Where you lost me is why, when the collections company subtracted their fees upfront, do you have to pay tgem anything?  Seems like that transaction would have been completed.

 

Since you do not record invoices in QBO you have no invoices to charge off in QBO. Thus the 48k is pure income from sales

AileneA
QuickBooks Team

Account Receivable Factoring For Cash Basis Business

Hi there, @LZip23

 

Thank you for reaching out to the Community. You can use Sales Receipt to record the 48k and deposit it to Undeposited Funds account. Let me show you how: 

 

  1. Click the + New.
  2. Select Sales receipt.
  3. Choose the customer name from the Customer drop-down menu.
  4. From the Deposit to drop-down arrow, tap Undeposited Funds.
  5. Fill out the rest of the sales receipt information needed.
  6. Press Save and Close

For the amount taken monthly, you can record it as well into the Sales receipt. Since there is no A/R on a cash basis. However, I suggest reaching out to your accountant for their second opinion to prevent any discrepancies in your book. 

 

For future reference, you can read through our help articles. It guides you in how to put payments into the Undeposited Funds account if you need to combine them into a deposit in QuickBooks Online.

 

Let me know if you need anything else. We're always happy to help. Have a great day!

LZip23
Level 1

Account Receivable Factoring For Cash Basis Business

Thank you John-Pero! 

Actually, the fees charged upfront are for origination and wire fees. We've been making weekly payments to the Factoring company. So based on your response below, because we have a hybrid system, I need to Dr Cash and Cr Sales for the $48K. So, the origination and wire fees would just be general expense for the company right? For the weekly payments, I need to set up a Loan payable of $68K(total amount due to factoring company) and charge the weekly payments against it correct (for the principal) and interest payments to the P&L? I look forward to your response. Thanks again!

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