: Once paid, the factor sends the remaining balance to the business, minus a factoring fee (usually 1.5% to 3%). Key Types of Factoring
: You give up control over the collection process.
: Customers might think the business is struggling.
The accounting for factoring depends on whether it is treated as a or a loan : As a Sale (Derecognition) :
: The factoring fee is recorded as an expense or "loss on sale of receivables". As a Loan (Secured Borrowing) :
: The factor typically advances 75% to 90% of the invoice value immediately.
: Accounts receivable are removed; cash increases.
: The business must buy back the invoice if the customer fails to pay. This is common and usually cheaper.
