Lecture Notes: Factoring Invoices in QuickBooks

Introduction

• Presenter: Kenny Long
• Topic: Factoring invoices in QuickBooks
• Context: Differences in handling invoices, receiving money, and factored invoices

Key Concepts

• Factoring Definition: From an accounting standpoint, factoring is a loan.
• Agreements:
  • Agreement with customer (broker or shipper)
  • Separate agreement with the factoring company
• No Direct Agreement: Factoring company has no direct agreement with the customer; they receive payments on your behalf.

Bookkeeping System

• Importance: Keep transactions with customers and factoring companies separate in your accounting.

Process of Factoring in QuickBooks

Creating Invoice

1. Invoice for Customer: Reflects receivables.
2. Loan Payable: Reflects money loaned by the factoring company.

Example Scenario

• Assumptions:
  • Factoring company holds 10% in reserve
  • Charges a 3% fee
  • Load value of $1,000
• Steps:
  1. Create a $1,000 invoice.
  2. Show loan payable of $1,000 in liabilities.
  3. Create reserve and liability accounts.

QuickBooks Implementation

• Invoice Creation:
  • Terms: Net 30
  • Date: e.g., August 1st
• Bank Deposit:
  • Create a bank deposit for factoring company loan.
  • Create accounts for liabilities and reserves.
  • Deposit reflects reserve and fee deductions.
• Factoring Fee Calculation:
  • Reserve is 10% of invoice
  • Fee is 3% of total amount

Receiving Customer Payment

1. Receive Payment: Use 'undeposited funds' for received checks.
2. Bank Deposit: Clear undeposited funds and apply to loan payable.
3. Release Reserve:
   • Deduct fees from reserve.
   • Remaining balance goes to checking account.

Conclusion

• Final Account Balances:
  • Checking account reflects initial deposit plus post-fee reserve release.
  • No overdue invoices visible on the dashboard after transactions.

Key Points to Remember:

• Always separate the transactions between the customer and the factoring company.
• Track and apply fees and reserves correctly in QuickBooks.
• Understand the impact of each transaction on liabilities and assets.