Wondering how your FundThrough Velocity advances should be categorized for bookkeeping? Read on!
Let us begin by walking you through an example. Let’s imagine your business has $100,000 of invoices outstanding, on net 30 terms, and would like to make use of that money to grow your business. A factoring agreement is made with FundThrough, in which you are charged a transaction fee of 2.5%
Assumptions:
-$100,000 in invoices factored
-$100,000 gross advance
-$2,500 transaction fee (2.5% per 30 day term)
-Cash advance will be the gross advance less the transaction fee ($100,000 - $2,500 = $97,500)
-Your customer pays in 30 days
Step 1: Record the advance of the Accounts Receivable:
Create a short-term liability account called: Due to FundThrough
Record the transaction at the time of the advance:
A. [debit] Cash for the amount of the advance received
B. [debit] Factoring expense and any bank charges
C. [credit] the short-term liability account called Due to FundThrough for the total amount factored
DEBIT | CREDIT |
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Step 2: Record the Collection
Record the transaction at the time of invoice payment:
[debit] Due to FundThrough to reduce the balance owed to FundThrough
[credit] Accounts Receivable for the paid invoice amount.
DEBIT | CREDIT |
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