Receivables financing: controlling its cost and accounting treatment

How much does receivables financing cost?

Receivables financing companies are remunerated through three main components:

• the factoring fee or service charge
• the financing commission
• additional fees

The price of the agreement depends on the type of receivables financing programme (off-balance sheet, confidential, invoice-by-invoice, etc.).

In addition, factors may temporarily retain a guarantee fund deducted from the purchased receivables to secure the transaction. This serves as protection against direct payments not transferred, disputes, or unpaid invoices. This reserve, typically around 10% of the receivables, is released once customers have settled their invoices with the factor. Otherwise, it may be retained.

What is the factoring fee?

The factoring fee (or service charge) is a percentage of the total assigned invoices. It is generally determined based on a pricing grid.

However, this rate can vary depending on several factors:

• Volume and invoice size: higher volumes and larger invoices generally lead to lower rates due to economies of scale; smaller volumes may result in higher fees due to higher processing costs
• Payment terms: shorter payment delays can reduce the fee

This fee also covers accounts receivable management services such as invoice matching, cash collection, reminders and debt recovery, as included in a standard factoring agreement.

How is the financing commission structured?

The financing commission is indexed to Euribor, the reference rate at which factors borrow from the European Central Bank. It is usually based on the 3-month Euribor, aligned with the average B2B payment term of around 90 days.

This rate typically ranges between 1% and 4%, depending on debtor credit quality. When customers are highly solvent and risk exposure is low, the financing margin can be negotiated downward.

What additional fees apply?

Finally, setting up a receivables financing agreement may include additional costs such as:

• administrative or onboarding fees,
• account management fees,
• IT integration or connectivity fees with the factor’s systems,
• audit fees related to onboarding and compliance checks.

Accounting treatment of receivables financing

Accounting for a full factoring agreement

A standard factoring arrangement is a comprehensive receivables financing solution in which the factor purchases, finances, and manages the company’s trade receivables.

The accounting treatment depends on the contract structure and the degree of risk transfer.

1. Assignment of receivables

When receivables are assigned to the factor:

• Trade receivables are derecognised or reclassified, depending on the accounting framework (IFRS or local GAAP) and the contractual structure
• A corresponding position is recognised as a receivable from the factor for the advance amount
• Any retention or guarantee reserve held by the factor is recorded as an asset until released
• Factoring fees and financing costs are recognised as financial expenses

Illustrative accounting entries (simplified presentation)

2. Cash advance from the factor

Once the receivables are assigned, the company typically receives an advance within 24–48 hours:

• Cash is received and recorded as an increase in liquidity
• The receivable position with the factor is reduced accordingly

3. Settlement at maturity

When the customer pays the factor at invoice maturity:

• The guarantee reserve is released and returned to the company
• Final settlement clears any remaining position between the company and the factor
• Any residual fees or adjustments are recorded as financial charges or income adjustments
• Alternative factoring structures

The accounting treatment may differ depending on the structure of the programme:

• Non-recourse / derecognition factoring: receivables may be removed from the balance sheet if substantially all risks and rewards are transferred
• Undisclosed factoring: receivables assignment is not disclosed to customers, but accounting treatment follows the same principles
• Balance sheet financing structures: receivables remain on the balance sheet, with financing recorded as a liability or cash advance

In all cases, classification depends on the assessment of risk transfer, control, and substance over form, in line with IFRS principles.

Illustrative example (simplified)

A company assigns €30,000 of receivables to a factor:

• The factor advances 90% (€27,000)
• Total fees and financing costs amount to €900

At assignment

• Receivables are derecognised or reclassified
• Cash inflow of €27,000 is received
• A reserve is retained by the factor as security

At maturity

• The remaining balance is released after customer payment (€2,100 in this example)
• Fees are recognised as financial expenses

Key takeaways

Receivables financing impacts financial reporting in three main ways:

• Liquidity: immediate conversion of receivables into cash
• Working capital: reduction of Days Sales Outstanding (DSO) pressure
• Balance sheet structure: potential off-balance sheet treatment depending on contract design

A properly structured factoring programme ensures alignment between financing objectives, operational efficiency, and accounting treatment.