How to use factoring as a source of company funds?
The company’s ability to manage cash flow will greatly affect the company’s sustainability.
High creativity is needed in managing cash, creativity in finding sources of income and use.
That’s the reason why people in financial accounting also need to be creative! Not only for those who are involved in the advertising, brand and art industries.
For example, companies need funds that exceed available cash, so what can be done?
Are you just going to give up and then report to your boss and say “There is no money, sir” without providing creative solutions will actually make things worse.
Your boss will even get whiny 🙂
If you as a financial accounting person can only manage a sufficient amount of funds to meet the needs of the company, then what’s the difference with the cashier?
Don’t you want to be an employee whose career has stopped or a miserable employee at work 🙂
Then be creative and keep learning and practicing that knowledge for the benefit of the company where you work.
If a company needs money that exceeds the availability of cash funds, one of the efforts that can be done is to research and review company’s trade receivables.
Then what can be done with these receivables?
Funding with Factoring and How to Record the Accounting Journal
Receivables are one way that can be used to meet the company’s funding sources.
Here’s how .. .
There are two ways to use receivables as a source of fresh funds for company operations, namely:
Way # 1. Using Receivables as collateral
Companies that need money can immediately borrow from banks or other non-bank financial institutions by guaranteeing trade receivables.
The use of trade receivables as collateral is usually provided that if something cannot be collected, the borrower is obliged to replace it with another trade receivable.
Customers whose receivables are used as collateral are usually not told that their receivables are guaranteed so that the collection is still carried out by the company that borrowed the money.
The proceeds of bills from the collateralized loans are used to pay off the loan.
Usually the amount of receivables guaranteed is greater than the loan received.
If the loan has been repaid while there is still a loan guaranteed, the excess belongs to the borrower.
The use of receivables as collateral can also be notified to debtors whose receivables are guaranteed and the collection of the receivables is carried out by banks or financial institutions rather than the lending bank.
Excess receivables collected above the loan amount and costs are returned to the borrower.
Loans with collateral guarantees are subject to administrative costs, commissions and interest as well as loans that are given will be less than collateral that is pledged.
Example and Recording of the Accounting Journal:
For example PT MCC Sidoarjo on April 1, 2015 borrowed money from bank A in the amount of Rp. 50,000,000 with collateral in the form of trade receivables in the amount of Rp. 75,000,000.
This loan is subject to an administration fee of 5% and an interest of 12% a year.
Customers whose receivables are used as collateral are not notified and billing is still carried out by PT MCC Sidoarjo.
During April 2015 receivables that can be collected in the amount of Rp. 30,000,000 and on April 30, 2015 paid to the bank to repay loans and interest.
During May 2015, the billable amount was IDR 25,000,000. The remaining receivables and interest are paid on May 31, 2015.
April 1, 2015:
Borrowing Rp. 50,000,000 minus the 5% fee. Receivables are pledged as much as Rp. 75,000,000.
Receivables collected at Rp 30,000,000.
Cash Rp. 30,000,000
Receivables are pledged as Rp. 30,000,000
April 30 2015:
Receivables collected at Rp. 25,000,000
Cash Rp. 25,000,000
Receivables are guaranteed Rp. 25,000,000
May 31, 2015:
Method # 2. Selling Receivables (Factoring – Factoring)
Factoring or factoring is one of the company’s efforts to meet funding needs.
Understanding factoring or factoring is selling trade receivables held to banks or non-bank institutions.
All possibilities arising from the sale of receivables such as cash or non-billable deductions are the responsibility of the bank or credit institutions that buy the receivables.
Costs incurred in the transaction include: service charge , namely costs associated with the sales bookkeeping function, the amount of which depends on the agreement of both parties.
For domestic receivables 0.5% – 1.5% and 1% – 2.5% for international payments are deducted from advance payments.
Then the discount charge , the costs associated with advance payments, the amount of which depends on negotiations before the contract is carried out with an average of 2% -3% above the prime rate .
At the time of the sale of receivables, customers whose receivables are sold are told to pay off to the bank or credit institutions.
To determine the amount of money to be paid, the bank or credit institution will check the state of the receivables that will be bought regarding the time of the occurrence of receivables, the deduction period, and the credit period.
Receivables that are still within the deduction period are recognized at their net amount, that is, receivables less deductions, and the deductions are recorded in the seller’s receivables book. For more details, read the article on sales returns.
If the sold receivables have been reserved for the loss of the receivables , the allowance for the loss is written off at the time of sale.
Examples of Funding with Factoring, calculations and their Journal Records
For example PT MCC Sidoarjo on January 10, 2016 sold receivables in the amount of Rp. 50,000,000.
Payment terms are 2/10, n / 30. Allowance for receivables losses that have been formed amount to Rp. 2000,000.
Receivables amounting to Rp. 50,000,000 bought by bank A for Rp. 45,000,000. After investigation, receivables that are still in the deduction period amounted to Rp 40,000,000.
The journal made by PT MCC Sidoarjo to record the transaction above is as follows:
January 10, 2016:
The loss from sales of accounts receivable in the above journal was debited to accounts of various costs because of the amount of Rp. The 2,200,000 represents interest, commissions and fees calculated by the bank for the receivables purchased.
Therefore, for PT MCC Sidoarjo the amount of Rp. 2,200,000 is the costs incurred in accounts receivable.
Thus the discussion of factoring, starting from the understanding, benefits, how to record factoring accounting journals, and examples.