Thanks for the video. Not all factors are money-grubbing sharks. I used to work for one and am working for a previous customer now. We get detailed reports showing what was deducted and why, and their percentages aren't nearly as high as the ones you've encountered. If I remember correctly, they take a max of 3% fee and hold a max of 20% reserves, depending on the customer's debtors. Anyway, thanks. I have experience dealing with this as the factor, but not as the customer. This was very helpful.
+Rick Vogeney unless you have all working capital you'll ever need, otherwise grow so slow your company will never really be significant. The cost of any financing if not offset by growth and capitalization is a negative. But nothing makes more money than money so if having it faster is not going to help you make more, then better stay and employee like the Nerd Guy.
There's really no IRS treatment per se. You have invoices, which means you have income. If you are a cash basis taxpayer then you recognize the income when the factor collects. The fees you pay the factor area a deductible expense. The money they give you is a loan. That's about it.
Umm it's MY TH-cam channel so I am pretty sure I get to decide what that subject matter is - opinions and all! The point I was making is that factoring receivables should be an absolute measure of last resort. The actual and then the accounting cost makes it a nightmare for anyone who ever does it. 4 out of 5 accountants agree!
Question: Once you receive the second payment, is the goal to balance the customer payment deposit to $0 with a remaining receivable of whatever the factoring company owes you?
Henry Waxman Sorry I guess I missed this one. The second payment is where it gets complicated. You won't likely zero out. The invoice balance gets paid off. Then the original loan amount is deducted, then fees are deducted. Then there will likely be an escrow adjustment. Sometimes they give you money out of escrow, sometimes the withhold more. Normally there is a threshold that is maintained based on a percentage of the outstanding receivables. For this reason you really have to take the time to understand the Factor's reports and make sure you can reconcile the invoice totals paid with the net amount received in your account. Otherwise your balance sheet will be a mess.
Hi! This video was recorded many years ago. At that time I could not find a decent factor anywhere. Nowadays there are many factors who provide amazing reports. The bookkeeping still remains a challenge as many people don't understand how to record these transactions accurately.
Very condescending attitude towards companies that decide to use a factoring service. "I cringe" and "I don't want that customer", why even make the video? Service I use is very clear on what money goes where.
a) I didn't say anything condescending about those who use factoring services. If anything my complaint was about the factors themselves. b) This video was from 2012 - a LOT has changed in 9 years. The reporting has gotten much better, and there are some REALLY good factors now like FundThrough (nerdyurl.com/factor) who integrate with QB Online and make the process very seamless, and the accounting very easy. c) You have to have a sense of humor about these things 🙄
Thanks for the video.
Not all factors are money-grubbing sharks. I used to work for one and am working for a previous customer now. We get detailed reports showing what was deducted and why, and their percentages aren't nearly as high as the ones you've encountered. If I remember correctly, they take a max of 3% fee and hold a max of 20% reserves, depending on the customer's debtors.
Anyway, thanks. I have experience dealing with this as the factor, but not as the customer. This was very helpful.
Thanks! I'll keep that in mind!!
This was extremely helpful! Thank you for the instruction!
Thanks for sharing your help and opinions. I agree that your shouldn't factor your invoices unless you like paying interest.
+Rick Vogeney unless you have all working capital you'll ever need, otherwise grow so slow your company will never really be significant.
The cost of any financing if not offset by growth and capitalization is a negative.
But nothing makes more money than money so if having it faster is not going to help you make more, then better stay and employee like the Nerd Guy.
Thank you. We are wondering if you know how the money factored for invoices is treated by the IRS. Thanks
There's really no IRS treatment per se. You have invoices, which means you have income. If you are a cash basis taxpayer then you recognize the income when the factor collects. The fees you pay the factor area a deductible expense. The money they give you is a loan. That's about it.
@@nerdenterprises Thank you
Umm it's MY TH-cam channel so I am pretty sure I get to decide what that subject matter is - opinions and all!
The point I was making is that factoring receivables should be an absolute measure of last resort. The actual and then the accounting cost makes it a nightmare for anyone who ever does it. 4 out of 5 accountants agree!
Is factor fee tax deductible?
Of course it is. It's a cost of doing business in the form of a financing cost.
OTR Capital is semple. If you can take a look at them. I pay a flat fee.Thank you so much
Finance One is a company that does factoring and provides reports that have been very helpful.
Good to know! Thank you!
Great video, thanks!
Question: Once you receive the second payment, is the goal to balance the customer payment deposit to $0 with a remaining receivable of whatever the factoring company owes you?
I see he hasn't answered your question
Henry Waxman Sorry I guess I missed this one. The second payment is where it gets complicated. You won't likely zero out. The invoice balance gets paid off. Then the original loan amount is deducted, then fees are deducted. Then there will likely be an escrow adjustment. Sometimes they give you money out of escrow, sometimes the withhold more. Normally there is a threshold that is maintained based on a percentage of the outstanding receivables.
For this reason you really have to take the time to understand the Factor's reports and make sure you can reconcile the invoice totals paid with the net amount received in your account. Otherwise your balance sheet will be a mess.
Wow not all factors are like that just crappy ones. Mine takes 3% off the top and their portal has complete transparency and invoice tracking.
Hi! This video was recorded many years ago. At that time I could not find a decent factor anywhere. Nowadays there are many factors who provide amazing reports. The bookkeeping still remains a challenge as many people don't understand how to record these transactions accurately.
Factoring is for "the dregs of society"? Maybe you do not like factoring, but that is a tacky comment. Stick to the subject matter and quit judging.
Very condescending attitude towards companies that decide to use a factoring service. "I cringe" and "I don't want that customer", why even make the video?
Service I use is very clear on what money goes where.
a) I didn't say anything condescending about those who use factoring services. If anything my complaint was about the factors themselves.
b) This video was from 2012 - a LOT has changed in 9 years. The reporting has gotten much better, and there are some REALLY good factors now like FundThrough (nerdyurl.com/factor) who integrate with QB Online and make the process very seamless, and the accounting very easy.
c) You have to have a sense of humor about these things 🙄