What is the proper way to balance books when factoring invoices and the factoring company also pays our vendors.
We're a freight brokerage that contracts trucking companies to transport our customer's freight. I have found a few different threads about how to record factored payments when the factoring company pays us, and our customer pays the factoring company. We have an added element here though. Our factoring company also pays our vendors directly, and we are only sent the margin less the fees and reserve. The factoring company holds back whatever payment is due to the vendor.
An example of a typical order would be like this:
- We do an order for our customer for $1,000.
- We contract a trucking company to transport the order for $800 ($200 margin)
- The factoring company's fee is 1.5% of the overall total ($15 fee)
- The factoring company's reserve is 3% ($30 reserve)
- We receive $155 (margin less fees & reserve) from the initial sale of the invoice, and receive the $30 reserve once our customer has paid the factoring company.
I've found some informative threads, but the factoring company paying our vendors is throwing me off. We're a small company and I'm not an accountant or bookkeeper, just trying my best to ensure I properly record these transactions. I don't know how to record and make this balance since the factoring company is paying our vendors directly and we did not technically receive the $800.
It is also worth noting that the factoring company purchases the ownership of the receivables.
Any help provided would be greatly appreciated!