Factoring of receivables
In this lesson, you'll learn how factoring works and why it matters for your Financial Reporting and Financial Management papers. Factoring is when a company transfers its receivables to an external factor in exchange for immediate cash, freeing up working capital and collection effort.
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In this lesson
- 0:00 Factoring of receivables introduction
- 1:34 With recourse factoring treatment
- 3:01 Without recourse factoring treatment
- 4:11 IFRS 7 disclosure requirements
About this lesson
The key distinction is whether the agreement is with or without recourse: with recourse, the original company retains the risks and rewards, so receivables stay on the balance sheet as a liability is recorded; without recourse, the company has genuinely sold the debt, so receivables are derecognised and a loss is recognised. You'll also discover the IFRS 7 disclosure requirements for financial instruments, including income, expenses, gains, losses, carrying amounts, and risk analysis that must appear in the notes to the financial statements.
Duration: 5m
Transcript
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