http://scn.sap.

com/docs/DOC-51668

Factoring of accounts receivable

created by Pradip Shrivastava on Jan 26, 2014 7:03 AM, last modified by Pradip Shrivastava on
Dec 14, 2014 5:53 AM
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Factoring is a process whereby the factoring agent pays the Company (the
originator) for the factored invoices less any fees, interest, dilutions or retention
amount, based on contract agreement. Receipt of the cash for factored invoices will
result in a balance sheet affect reducing the AR balance by the amount of the
factored invoices.

Factoring receivables provide the Company (the originator) with a tool which will
increase the cash flow based on accounts receivable documents for certain
customers. Once invoices are selected by the factoring agent they need to be
identified and marked in SAP for tracking purposes as well as reconciliation.

There is a need to develop a process which will allow the Company (the originator)
to account for the factored transactions and reconcile with the factoring agent. The
bank account will be established at the current House Bank and be a shared
account with the company and the factoring agent.

Customers will remit to the shared bank account for all their invoices, both
factored and non factored and the Company (the originator) will have to reconcile
with the factoring agent and settle cash for non factored invoices. The single
account for all remittance is to not affect the customers process and not indicate to
them that invoices have been factored.
SAP provides the ability to mark factored invoices on the AR transactions but that
does not provide accounting functionality for cash and balance sheet impacts. The
cash accounting process needs to be built in conjunction with the cash application
and clearing customer receivables.

The recommended solution for the Company (the originator) is to implement the
use of the AR Pledging Indicator and design a solid reconciliation process for
factoring accounts receivable.The following solution details lay out what is
required to evaluate and ultimately the steps to implement a factoring process.

Process Proposal

1) Bank account established at the current House Bank, shared with the Company
(the originator) and the factoring agent.

2) Customer remittance will be directed to the new account for all cash receipts.

3) The Company (the originator) will receive bank statement, including the new
account, to allow automatic cash application process to remain the same.

4) Mark Customer invoices as factored through configured fields AR Pledge

Indicator and Text Field with identification (i.e. DD/MM/YYYY + user ID)

5) Accounts receivable invoice will remain open on customer account to allow

normal servicing (i.e. collections, credit, statements, aging, etc)
6) Cash received from factoring agent will debit cash and credit AR Contra account
to relieve balance sheet of factored AR.

7) Cash application will debit cash clearing account and credit AR customer,
clearing the invoices through normal post processing.

8) Reconciliation performed daily to determine factored invoices cleared and non

factored invoices cleared.

a. Factored Invoices: Credit cash clearing and debit AR Contra account for
amount of factored invoices which were cleared. This is done daily to true up the
AR contra account for factored invoices

b. Non-Factored Invoices: Credit cash clearing and debit Bank Due To/Due from
account. Performed daily to reconcile cash clearing account and

indicate cash receivable from the bank for money they have on non-factored
invoices.

9) Settlement: Bank will submit cash to the Company (the originator) (via EBS) for
the amount of cash they hold for non-factored invoices. Debit Cash and Credit
Bank Due To/Due from.

Implementation Activities

1) Activate AR Pledging for the Company Code. (This allows the AR Pledging
Field/Flag to be configured and used on the customer account or AR Invoice.

2) Configure the AR Pledging Indicator (Factor flag)

a. 01 = Offer

b. 02 = Factored
c. Field Status for customer master

d. Fields status for customer invoice

3) Electronic Bank Statement

a. Configure new account at house bank

b. Change GL account for cash entries in EBS

c. Create new BAI code and GL account determination for EBS

4) Add AR Pledging Field to any BW reports in AR

5) Reporting Requirement:

a. Define and evaluate what reporting requirements exist

b. Map to current / standard reports

c. Create new reports for reconciliation process or historical reporting