How to Record the Factoring of a Progress Invoice
Selling a certified progress invoice to a factoring company to receive immediate cash.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash in Bank (Advance) | Asset (+) | 190,000.00 | - |
| Factoring Fee / Finance Charge | Expense (+) | 10,000.00 | - |
| Accounts Receivable (Progress Invoice) | Asset (-) | - | 200,000.00 |
💡 Accountant's Note
Contractors with long payment cycles can factor certified invoices for immediate cash. The discount charged by the factor (typically 3-6%) is a finance cost.
Practitioner & Systems Framework
💻 ERP Architecture
If factoring is 'without recourse' (risk transferred to factor), derecognize the AR as shown above. If 'with recourse' (you bear the risk of client default), keep the AR on books and record the cash received as a Short-Term Loan.
⚠️ Audit Flags
IFRS 9 derecognition tests. Auditors heavily scrutinize recourse vs non-recourse terms to determine if the invoice truly left the balance sheet or just created a hidden loan.
📄 Required Documentation
Factoring agreement (detailing recourse terms), assignment notice to client, and factor's settlement statement.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.