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  • What does it mean to factor receivables?

    When a company factors their receivables, it means they are “selling” the receivables to a 3rd party collection company in exchange for cash. The 3rd party collection company will then attempt to collect the receivables. The company would pay a transaction fee, which is typically a % of receivables. Companies can factor with recourse or...

  • What is the journal entry to record when a company factors its receivables?

    Since the company receives cash from the 3rd party collection company, the debit would be to cash. Additionally, there would be a debit to factor expense, which is calculated using the % of total receivables. There would be a credit to accounts receivable for the full amount transferred. It is typical for the 3rd party...