A company factors $300,000 of receivables without recourse. The factor charges a 3% fee and retains a 5% holdback. How much cash does the company receive immediately, and how should the holdback be classified?

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TheoryPractice · Accepted Answer

$276,000 cash; holdback recorded as a receivable from factor. Cash received = $300,000 × (1 – 3% fee – 5% holdback) = $300,000 × 92% = $276,000. The 5% holdback ($15,000) is recorded as a receivable from the factor because the company retains a right to those funds (less any credit adjustments). The 3% fee ($9,000) is recognized as a loss on sale.

A company factors $300,000 of receivables without recourse. The factor charges a 3% fee and retains a 5% holdback. How much cash does the company receive immediately, and how should the holdback be classified?

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