Factor a Procedure with 3rd Party Debtor Finance

Summary

▪Most financial institutions offer debtor finance solutions.

▪The details of the solutions are likely to vary between institutions, but most will advance approximately 80% of the value of approved sales invoices, usually within 24 hours.

▪When the invoices are paid by the customer, the remaining balance is released.

▪There is a limit on the facility, ie. the debtor finance provider will advance up to the agreed total debtor finance facility value at any time.

▪Some institutions deduct their fee from the final payment, whilst others deduct the fee from the bank account set up as per below.

▪Interest is charged on the value of the funds advanced.

Background

This explanation is generic and not specific to any one provider, however the procedure is approximately as follows:

▪The provider typically wants the full sales ledger (except COD sales).

▪An in-house credit application process should be in place, which involves doing a credit check. The provider will usually undertake a search on customers prior to approving them for inclusion in the facility.

▪Invoices are sent to the provider at the agreed intervals (usually weekly, or whenever there are fresh invoices) for funds to be released.

▪In addition to the normal trading bank account, there is a separate bank account in the company name that is part of the facility, and customers must pay into this bank account. Read only access to this account is available to see who has paid.

▪There is also a line of credit account for the facility, ie. the value of the funds advanced.

▪Each day the provider will sweep any debtor funds received via the debtor finance bank account into the line of credit account to reduce the balance. The line of credit account will reflect the total amount advanced at any time.

▪A draw-down can be requested up to the value of the balance available on the facility, eg. the agreed limit of the facility is $200,000 but the current liability is only $150,000, so based on funds paid by customers, request up to $50,000 to be transferred to the trading bank account.

Set up in Jim2

1.Add a cardfile non-report group, eg. Debtor Finance.

2.Update the approved customer cardfiles, and ensure the approved customers are put into the Debtor Finance cardfile non-report group.

3.Add a new general ledger asset account – Type – Detail Cheque Account (Postable) – for the debtor finance bank account that the customers will pay into, eg. 1-XXXX Debtor Finance bank account, with Default Tax Code X.

4.Add a new general ledger liability account – Type – Detail Credit Card Account (Postable) – for the line of credit extended, eg. 2-XXXX Debtor Finance facility with the Default Tax Code X.

Procedure in Jim2

▪Sales are made in the normal way, ie. add a job and invoice the customer.

▪At the agreed interval (weekly or at the end of each day, if there are new invoices), run the sales register for the period, and filter by the cardfile non report group Debtor Finance, so only sales to approved customers will be included in the list.

▪Any returns from customer should also be included in the list.

▪Right click in the list and select Export Data from the drop down options, save as a spreadsheet to upload to the provider.

▪Each day, check the debtor finance bank account and enter any debtor payments received into Jim2, ensuring they are processed into the new 1-XXXX Debtor Finance bank account.

▪Add a cheque to record any transfer of funds from the 1-XXXX Debtor Finance bank account to the 2-XXXX Debtor Finance facility.

▪Add a cheque to record any draw-down from the 2-XXXX Debtor Finance facility to the 1-XXXX trading bank account.

▪Add the fees and interest charged either by cheque or via the Bank Entry icon in the Bank Reconciliation screen.

Refer to the debtor finance provider for the specific details of the agreement.