: The factoring fee is recorded as an expense or "loss on sale of receivables". As a Loan (Secured Borrowing) :
Factoring is a financial transaction where a business sells its unpaid invoices () to a third party, known as a factor , to receive immediate cash . This provides quick liquidity instead of waiting 30, 60, or 90 days for customers to pay. How the Process Works factoring in accounting
: The factor typically advances 75% to 90% of the invoice value immediately. : The factoring fee is recorded as an
The accounting for factoring depends on whether it is treated as a or a loan : As a Sale (Derecognition) : How the Process Works : The factor typically
: Accounts receivable are removed; cash increases.
: Once paid, the factor sends the remaining balance to the business, minus a factoring fee (usually 1.5% to 3%). Key Types of Factoring