How to Record Factoring Bad Debt Provision
Accounting for the provision of potential losses on receivables that have been factored with recourse.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Bad Debt Expense | Debit | 1,200.00 | - |
| Allowance for Factored Receivables | Credit | - | 1,200.00 |
💡 Accountant's Note
In recourse factoring, the company retains the credit risk. Therefore, an allowance must be maintained for potential non-payment by the end customer.
Practitioner & Systems Framework
💻 ERP Architecture
Manual journal entry in General Ledger or Credit Management module.
⚠️ Audit Flags
Inadequate provision relative to the historical default rate of factored invoices.
📄 Required Documentation
Aging report of factored receivables and credit risk assessment.
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Related Journal Entries
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Factoring Without Recourse — True Sale of Receivables (Derecognition Under ASC 860)
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Factoring With Recourse — Secured Borrowing (Receivables Remain on Balance Sheet)
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Reverse Factoring / Supplier Finance Program — Buyer's Accounting (ASU 2022-04 Disclosures)
Discussion & Community Questions
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