How to Forecast Invoice Factoring without Recourse

Written by Ross MacLeod

 

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In this example we’re going to forecast a £5,000 sale on the 1st of February, the invoice value of which we will be selling in order to receive an immediate cash boost. We will be receiving 70 percent of the value of the invoice (£3500) upfront at a fee rate of 5 percent (£250) and the remaining value (£1250) will be being paid once the customer has paid their original invoice, totalling £5,000, which we anticipate will be 60 days after the 1st of February. First we’re going to forecast the £5,000 sale. To do so, we need to create a Forecast Item against our Sales line for the 1st of February, with the value of £5,000.

As we’re going to be selling this invoice, we’re going to be using FUTRLI’ Advanced options to handle the Balance Sheet movements for this item. As a result, we will be leaving the Credit Terms at zero and instead marking this as a No Cash entry, so that we can push the £5,000 to the Asset line on which we will be handling our Invoice Factor. To do this, we select Advanced Options, select No Cash from the first dropdown menu in the Advanced screen and then select the appropriate Asset account to be Debited – in our example we’re using Factored Invoices Sold:

This will cause £5,000 to be debited in our Factored Invoices Sold account on the 1st of February.

As we’ll be paying a fee of 5%, we next need to enter an Expense for the value lost due to selling our debt up front. To do this, we’re going to scroll to the appropriate Expense account and enter a transaction dated the 1st of February for the value of £250:

As with our Sales invoice, we’ll be entering this as a No Cash item, which will be reducing the value of our asset line, Factored Invoices Sold:

If we now navigate to our Asset line, we’ll find it being increased by the £5,000 value of our original sale and decreased by our cost of £250. The final step that we need to perform to complete our forecast, is to mark the receiving of cash on the 1st of February (our £3500) and 60 days later in April (our £1250). To do this we’re going to create a new forecast item against our Factored Invoices Sold line using the On the Fly method. Against February we’re going to enter our value of £3500 and against April our value of £1250:

 

We’re now going to select our Advanced Options again in order to reverse the behaviour of this transaction so that it is entered as a debit rather than a credit:

And we’re done! If we now navigate to our Cash Flow tab we’ll see £3,500 entering our Bank Account on February 1st and then a further £1250 in April: