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Assignment of Accounts Receivable Journal Entries

The assignment of accounts receivable journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accounts receivable assignment.

The assignment of accounts receivable journal entries are based on the following information:

• Accounts receivable 50,000 on 45 days terms
• Assignment fee of 1% (500)
• Initial advance of 80% (40,000)
• Cash received from customers 6,000
• Interest on advances at 9%, outstanding on average for 40 days (40,000 x 9% x 40 / 365 = 395)

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Factor Accounts Receivable

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on January 30, 2024

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Table of Contents

Definition and explanation.

The original holder obtains cash at once in return for the proceeds collected in the future, except that the collection process is handled by a third party (often known as a fa ctor ).

If the assigned receivables are insufficient to repay the factor because of bad debts , the original holder must transfer additional receivables.

If the factor collects more than the amount advanced, the excess is turned back to the original holder, as well as any uncollected accounts .

Suppose that Sample Company obtains $80,000 cash on 31 December 2023 by assigning $100,000 of its receivables with recourse.

The factor will collect the receivables and keep the first $85,000 to repay the cash advance and a $5,000 service charge.

Settlement is to be made on 1 April 2024, which will involve making a payment to Sample Company of any excess cash and the return of the uncollected accounts. The journal entries shown below would be made.

The journal entry used to record the cash received from the factor is as follows:

The journal entry used to record the transfer of the receivables to the factor:

The journal entries to accrue the finance charge are shown below.

This last entry reflects the fact that the factor collected $92,000 cash and kept $85,000. The uncollected accounts are transferred back.

This example illustrates how the events described in the previous section would be reflected in Sample Company's balance sheet —assuming, for simplicity, that nothing else happens.

Notice that the payable to the factor is contra to the assigned receivables. Until informed about the amount collected and kept, the company will continue to carry the assigned receivables and the payable on the books at their original amounts.

The net result of the arrangement is that Sample Company exchanged $85,000 of its receivables for $80,000 cash.

Assignment Without Recourse

Assigning without recourse differs from as signing with recourse in that the factor does not get to substitute other accounts for the uncollectible ones.

The factor does not have to return any cash in excess of the amount advanced or any uncollected accounts.

In effect, assignment without recourse is the same as an outright sale of the receivables.

Accounting for this transaction is si mple because it is the same as the sale of any other asset . The holder records a loss for the difference between the proceeds and the book value .

The factor (or buyer) usually obtains a high discount from the book value of the receivables because of the risk of uncollectibility.

Suppose that Sample Company receives $90,000 cash on 31 December 2023 for assigning $100,000 of its receivables without recourse. The following journal entry would be recorded:

This arrangement is essentially the one used by retailers when they enroll in a bank credit card plan.

Upon submitting charge slips from customers, they receive a credit in their bank account for a percentage of the sale.

The cost is incurred by the retailer for the following purposes:

• Obtain the cash quickly
• Avoid bad debt losses
• Save clerical costs
• Increase sales

Since the arrangement dealing with credit cards is related to ongoing operations, the debit entry is made to an expense account instead of a loss account.

Factor Accounts Receivable FAQs

What is factoring.

Factoring is a form of financing in which your company sells its Accounts Receivable (collectible debt owed to you by customers) to another business known as the "factor" at a discount.

Does my company need any special expertise or training to do factoring?

No, regular businesses can successfully factor their Accounts Receivable. A factor will help your company complete all of the paperwork and advise you on how to optimize its factoring program.

How much money should I factor in?

A business should factor all of the Accounts Receivable that are within 90 days old. This will give you more control over your Cash Flow since you can factor on a regular basis instead of waiting until you have collected enough money to pay off an entire account payable.

Will factoring affect our company's credit rating?

No, it will not affect your company's credit rating. There is no impact on a company's current line of credit and it does not affect the company's ability to obtain additional borrowing in the future.

What are "factoring fees" and do I have to pay them?

The factor will charge a separate fee for its services when it purchases your Accounts Receivable. This fee is usually not more than 1% of the total sales price and it may be negotiable.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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News & Insights

What Does "Without Recourse" Mean in the Assignment Area of an Auto Contract?

February 20, 2016 — 12:01 pm EST

Written by The Motley Fool  ->

It is common practice for lenders to sell their loans after closing on them -- and this is especially true when it comes to mortgages and auto loans. If your loan contract has an "assignment without recourse" clause, it means that this could happen to you.

What an "assignment without recourse" clause means to you, the borrower

Essentially, an assignment clause in your auto loan contract means that you are giving the lender permission to either sell or transfer your loan to another finance company.

Lenders sell loans for a variety of reasons -- for example, many lenders simply act as originators and don't like to hold many outstanding loans on their books. Or if a lender finds itself with too much outstanding auto loan debt, it could decide to sell a portion of its loan portfolio.

Whatever the reason for selling, the "without recourse" part of the clause means that you can no longer hold the initial lender responsible for any errors or other loan-related issues. Upon sale of the loan to a new lender, the borrower's relationship with their original lender is automatically terminated.

The borrower must deal with a new lender for all issues regarding the loan and must make payments to the new lender. The new lender cannot change the loan's terms, such as the interest rate or loan length, but may have different policies in regards to issues like late payments. If your loan does get sold, it's important to thoroughly read any information you receive from the new lender so you're familiar with any changes that may take place.

The bottom line on "without recourse" clauses

If you want an auto loan that will be maintained by a specific lender for the duration of the loan, be sure to thoroughly read your contract (you should be doing this anyway), and make sure there is no "assignment without recourse" clause. If you're not sure if there is or not, this is a question to specifically ask your lender, so you'll know whether or not your loan can be sold without any responsibility remaining on your lender's shoulders.

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• Receivables
• Notes Receivable
• Credit Terms
• Cash Discount on Sales
• Accounting for Bad Debts
• Bad Debts Direct Write-off Method
• Bad Debts Allowance Method
• Bad Debts as % of Sales
• Bad Debts as % of Receivables
• Recovery of Bad Debts
• Accounts Receivable Aging
• Assignment of Accounts Receivable
• Factoring of Accounts Receivable

Factoring of accounts receivable is the practice of transferring the ownership of accounts receivable to a company specialized in receivable collection, in exchange for immediate cash. In other words, the company that originally owns the receivables, sells them to another company called “factor” and receives immediate cash.

Factoring helps a business improve its cash flow by converting its receivables immediately into cash instead of waiting for the due dates of payments by customers. A drawback of factoring is that it is done at a discount, which means that the cash received on factoring of receivables is less than the value of the receivables transferred. This is because the factor expects a certain margin and it faces risks such as time value of money , and depending on the agreement, the risk of default by the debtors.

The parties to the factoring agreement assess the recoverability of the accounts receivable, decide whether or not the factoring agreement will be with recourse or without recourse, and then agree on a suitable discount factor to calculate the amount of fee to be charged by the factor i.e. the discount. After deducting such a fee from the value of the accounts receivable, the factor pays in cash to the originating company. The factor may also withhold an additional amount as a refundable security against any bad debts that may arise.

As a result of the above transaction, the factor gains ownership of the accounts receivable and has access to the detailed records of those receivables . The factor is specialized in receivable collection and it may actually be cost effective for businesses to factor their receivables because doing so will save costs such as wages paid to staff for following up with customers.

The factor collects cash from the debtors as the due dates approach. The procedure to be followed in a situation where a debt becomes irrecoverable, depends on whether or not the factoring agreement is with recourse.

Recourse vs non-recourse factoring

Under non-recourse factoring, the factor may set-off the sum retained as a security, if any, against any bad debts that may arise but the factor is not entitled to be reimbursed by the originating company if the total of bad debts exceed the amount of security. In other words, the additional loss on bad debts under non-recourse factoring is borne by the factor.

Under a factoring agreement with recourse, the company factoring its receivables agrees to pay bad debts in full to the factor. So if the security falls short of the total bad debts, the factor is entitled to be reimbursed for bad debts in full.

Non-recourse factoring is riskier than factoring with recourse for the factor, generally resulting in higher discount rates over factoring with recourse.

Factoring vs assignment of receivables

Factoring is different from a financing agreement involving assignment of receivables because the later uses receivables as a collateral security for a loan, but the actual ownership of the receivables and the right to collect them is not transferred as long as the loan and any related interest payments are paid in time.

The following example illustrates the journal entries to record transactions related to factoring with and without recourse:

On January 1, 20X5, Impatient Inc. factored its accounts receivable of $100,000 at a fee of 8%. Under the terms of the agreement, the company received $82,000 in cash and the rest of the amount was retained by the factor as a security for any bad debts that may arise. Any excess of this security sum over the total bad debts was agreed to be returned by the factor at the end of the accounting period i.e. December 31, 20X5.

On December 31, 20X5 the full amount of security sum was withheld by the factor because the actual bad debts totaled $11,000 exceeding the security sum.

Impatient Inc. had already provided allowance for doubtful debts in the factored accounts receivable and a bad debts expense was recognized in the income statement of year ended December 31, 20X4.

Required: Pass journal entries to record the above transactions for Impatient Inc. both under factoring with recourse and factoring without recourse.

January 1, 20X5: Here, the journal entry will be identical under both factoring with recourse and factoring without recourse.

December 31, 20X5: The journal entries will differ under the two types of factoring. Since the actual bad debts exceed the amount initially retained by the factor, Impatient Inc must pay the factor, an additional amount of $1,000 under factoring with recourse but there is no such remedy if the factoring is without recourse.

Under factoring with recourse:

Under factoring without recourse:

It is important to note that the type of factoring influences the amount of fee charged and the amount of security held by the factor and the scenario in this example is only for the purpose of comparing the two types. The amount of security retained may be zero under factoring with recourse because the agreement guarantees the factor that any debts that may turn out to be irrecoverable will be reimbursed.

by Irfanullah Jan, ACCA and last modified on Oct 29, 2020

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What Does “With Recourse” and “Without Recourse” Mean in International Finance?

Understanding the difference between "with recourse" and "without recourse" terms in a letter of credit transaction.

Recourse means the right to claim a refund of an amount paid in connection with the negotiation of a documentary credit or the discounting of a bill of exchange. (1)

With recourse and without recourse are two terms defining whether or not the paying bank shall claim refund from the beneficiary in case it could not get reimbursement from the issuing bank.

On this post I will be answering below questions with the help of the graphic illustrations.

• What is the meaning of with recourse term in international trade finance terminology?
• What is the meaning of without recourse in international trade finance terminology?
• Which banks pay with recourse and which bank pay without recourse basis?

What is the Meaning of With Recourse and Without Recourse Terms in International Trade Finance Terminology?

With recourse term defines the situation in which the paying bank will be able to claim refunds from the beneficiary in case the letter of credit documents are not paid by the issuing bank.

In general, the nominated bank or the negotiated bank pay the letter of credit amount to the beneficiaries with recourse terms.

Without recourse term defines the situation in which the paying bank will not be able to claim refunds from the beneficiary in case the letter of credit documents are not paid by the issuing bank.

In general, the confirming bank pay the letter of credit amount to the beneficiaries without recourse terms.

Important Note: The nominated bank may also pay to the beneficiary against discrepant documents with recourse basis.

These types of payments should be covered with a formal indemnity.

References:

Documentary Credits, Nordea Trade Finance, Page: 305

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Effectiveness Date of an Amendment

What Does Sales With Recourse & Without Recourse Mean?

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When it comes to sales, "with recourse" is a legal term that means with subsequent liability, and "without recourse" means without subsequent liability. The sales agreement signed by the buyer and seller determines whether a sale is a recourse sale or a without recourse sale and thereby determines the respective rights and responsibilities of both parties.

Sales With Recourse

Sales with recourse means liability for the asset sold falls upon the seller. The seller of an asset bears responsibility for the nonperformance of the item. By selling the asset, the seller assumes the risk that the asset sold may be defective or does not perform as promised. By doing so, the buyer has the right to seek recourse from the seller. This means that the seller of the asset is obligated to make the buyer whole, either by reimbursing the buyer for the asset or offering a replacement of equal value.

For instance, if your small business sells small kitchen appliances and your customer purchases a toaster that does not eat evenly, you will probably need to issue them a refund or replace the product at no charge to them. You probably have something in your return policies or product warranties that lets your customer know that can seek this recourse should anything go wrong with their purchase.

No Recourse: Meaning

According to Investopedia , sales without recourse means liability for the asset falls upon the buyer. Without recourse means that the buyer of the asset accepts the risk associated with the item. If the asset does not work as promised or is otherwise defective, the buyer has no recourse against the seller. The seller of the asset is under no obligation to replace the asset or refund the purchase price paid by the buyer. By purchasing the asset, the buyer agrees to accept the possibility of nonperformance as a potential outcome of the transaction.

For instance, a small furniture store might offer a section of mildly or moderately damaged furniture goods. These pieces are often sold "as-is," so that the customer cannot ask for a refund due to the small imperfections in the furniture. The customer buys the furniture with full knowledge of the imperfections and accepts the lower price as a trade-off, without the option to return the goods.

Real Estate Sales

When it comes to real estate sales, recourse has a slightly different meaning. According to NOLO , certain states are considered recourse states when it comes to mortgage loan agreements, which means the lender of a home loan can foreclose on the property, then seek recourse from the buyer for the loan value, even after the homeowner has lost the property. The lender will sell the property at auction. The difference between the price the lender receives for property and the amount owed on the loan is called a deficiency. The lender can sue the borrower for this deficiency amount. In states that have nonrecourse laws when it comes to mortgage loans agreements, the lender cannot sue the borrower for a deficiency.

Consequences and Judgements

If a lender obtains a judgment against a borrower in a recourse state, that lender can potentially seize money in the borrower's bank account, place a lien on other property that the borrower owns or garnish a portion of the borrower's earned wages, depending upon the laws of each state. Plus, the lender can pursue the borrower for many years. Each state has a statute of limitations on judgments. The length of this statutory period varies by state. In Florida, for example, the statute of limitations on judgments is 20 years from the date the court issues the judgment.

• Investopedia: Without Recourse
• NOLO: What's the Difference Between a Recourse and Nonrecourse Loan?

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without recourse

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A phrase meaning that one party has no legal claim against another party.  It is often used in two contexts:

1.  In litigation, someone without recourse against another party cannot sue that party, or at least cannot obtain adequate relief even if a lawsuit moves forward.  Someone completely without recourse cannot sue anyone for an alleged injury, or else cannot obtain any relief even if lawsuits are filed.

2.  In financial transactions, the words "without recourse" disclaim any liability to the subsequent holder of a financial instrument.  Thus, endorsing a check and adding "without recourse" to the signature means that the endorser takes no responsibility if the check bounces for insufficient funds.  If the bank accepts such a check and deposits the stated amount in the endorser's account, the bank will have no right to withdraw that amount from the endorser's account.

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Assignment of Accounts Receivable with Recourse

August 5, 2023 Forms

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What Is Full-Recourse Debt?

Understanding full-recourse debt.

• Full-Recourse vs. Non-Recourse Debt

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Full-Recourse Debt: What It Means, How It Works

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Full-recourse debt is a type of secured debt that gives the lender rights to assets—beyond just the secured collateral specified in the loan contract—to cover the full repayment of the borrower’s loan obligations if they default on the loan.

In other words, loans with full-recourse provisions offer lenders additional remedies to pursue 100% of the outstanding loan amount, including legal action.

Key Takeaways

• Full- and non-recourse debt are examples of secured loans.
• Full-recourse debt is common in the mortgage loan sector.
• Full-recourse debt gives the lender the right to seize assets beyond the specified collateral in case the borrower defaults on the loan.

When a borrower enters into a secured loan contract, the terms of the contract may be either full- or non-recourse. The provisions of a full-recourse loan give the lender rights to more assets than just the secured collateral specified in the contract.

Full-recourse debt mitigates risk for the lender. A lender may choose to integrate a full-recourse clause into the loan agreement if they believe that a secured asset likely will decrease.

Full-Recourse Loans and Mortgages

Full-recourse loan provisions are common in loan agreements that use a real estate property (i.e., mortgages ) as collateral. For example, if a borrower were to default on their mortgage loan, then that lender would want to seize the property and foreclose.

However, if the property's resale value does not cover the entire amount due to the lender, then—provided the loan contract had a full-recourse provision—full-recourse rights would kick in. So mortgage bankers generally add full-recourse clauses to their loan agreements to protect themselves from the risk of a drop in collateral value.

Full-Recourse Lender Rights

A full-recourse provision grants the lender the right to seize any additional assets that the borrower may own and use them to recoup the remaining amount due to them. Depending on the terms of the full-recourse loan, lenders could gain the authority to tap a borrower’s bank accounts, investment accounts, and wages.

For the lender, full-recourse debt is practically risk-free.

Full-Recourse  vs. Non-Recourse Debt

Full-recourse and non-recourse debt are associated with secured loans. The essential difference between a full-recourse and non-recourse loan has to do with the types of assets a lender can claim if a borrower fails to repay a loan.

Non-Recourse Debt

In contrast to full-recourse debt, non-recourse debt does not give a lender any rights to additional assets if a borrower defaults on a secured loan. In a non-recourse mortgage loan, the lender would not have rights to any assets beyond the real estate collateral.

Thus, non-recourse debt presents some collateral risk for the lender, as there is a chance that the collateral value could fall below a borrower’s repayment value. However, as a mortgage loan progresses, the collateral risk will decrease for the lender because greater portions of the loan will be paid off.

That the collateral value may decrease is usually an important risk consideration in the underwriting process . This risk is one reason that lenders typically have a loan-to-value ratio threshold for the amount of principal that they will issue to a secured borrower. Most lenders usually require a loan-to-value ratio of no more than 80%. Higher ratios can be approved but will typically require primary mortgage insurance (PMI).

Failing to repay either a full-recourse or non-recourse debt can have serious financial consequences. If you're struggling with your loan payments, then one of the  best debt relief companies  or  credit counseling agencies  might be able to help you circumvent the worst possible outcomes.

What Other Types of Assets Are at Risk in a Full-Recourse Loan?

Every loan agreement is different, and the types of assets that may be vulnerable should be outlined in the agreement. Typically, the lender could tap into personal bank accounts, investment accounts, or real estate to recover their investment.

What Types of Loans Are Most Often Full-Recourse loans?

Most full-recourse loans are secured by real estate. Mortgages are the most common type of full-recourse loan.

Are Non-Recourse Loans Unsecured?

Both full and non-recourse loans are secured by collateral. However, if the value of the property has decreased, a full-recourse loan will require the borrower to pay back the full amount borrowed, including unpaid interest and fees, even if the property is no longer worth the original amount.

Full-recourse loans are a big win for lenders but can be very risky for borrowers. If you purchase a property in a volatile market, you may have to dip into your personal accounts to cover the cost of the property when the market value drops. Read any full-recourse loan agreements very carefully to find out what assets are fair game in the event of a devaluation.

Internal Revenue Service. " Recourse vs. Nonrecourse Debt ."

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What is recourse and nonrecourse lease assignment?

The right of an assignee or buyer in a financial transaction to demand performance from the transaction assignor or seller in the event of default on the underlying debt is recourse .  Where a financial transaction is nonrecourse , its assignor or seller is not held liable for payment and performance in the event of default on the underlying debt.

Lease assignments may be with recourse, without recourse or with limited recourse of the assignees (funders) to the lessor in the event of lessee default on the assigned leases :

• Recourse assignment – The assignor is held liable to provide the assignee payment and performance of the underlying debt or to repurchase the assigned rights from the assignee upon occurrence of an event of default under the transaction;
• Limited recourse assignment – The assignor is liable to the assignee only for a portion of the remaining obligations of the underlying debt upon occurrence of an event of default under the lease, where the recourse amount normally decreases and eventually ceases after a certain period of time;
• Nonrecourse assignment – The assignor bears no liability toward the assignee for payment and performance of the underlying debt in the event of default on the transaction, where most lease assignments provide the assignees no recourse to the lease assignor.

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Should you give job applicants an assignment during the interview process? Be thoughtful about the ask

Hiring is a time-consuming and expensive endeavor. Companies need candidates who offer the right skills and experience for a given role, and who align with their organization’s vision and mission.

To find the best fit, many companies still lean on a strategy that continues to generate debate : the assignment. Some candidates believe their experience and interviews should give prospective employers enough information to determine whether they will fit the role. Employers have to ask themselves whether they are willing to turn off a strong candidate by asking them to do additional work.

Is the assignment valuable enough to the evaluation process that they cannot move someone forward without it? Sometimes it is—sometimes they help an employer decide between two strong candidates. And if they are necessary, how can employers make assignments fair and equitable for the candidate or candidates?

When done right, assignments help assess practical skills and problem-solving abilities, giving a clearer picture of a candidate beyond what their resume or interview reveals. But employers should be thoughtful about the ask. While it may make sense for roles that require specific technical expertise or creative thinking, it isn’t appropriate for all roles—so assignments should always be given with a clear reason for why they are needed.

Plus, they don’t just benefit the employer. For job seekers, an assignment during the interview process might also help them stand out from the competition. It can also offer a window into what their day-to-day in the new role might entail. Remember that the candidate should be interviewing the company, too. Having a test run of the work they’d be asked to do is a great way to see whether they believe the role is a fit.

However, there is a rift in how people perceive the assignment as part of the interview process. Workers today span many generations, each with unique values and expectations. Whereas older workers often prioritize stability and loyalty, younger millennials and Gen Zers are more focused on flexibility and work well-being, Indeed data shows .

This mindset impacts the amount of time and energy a candidate is willing to devote to each application. After multiple rounds of interviews and prep, taking on an in-depth assignment may feel like a bridge too far—especially if the expectations for the assignment are not clearly communicated ahead of time.

Some candidates are wary of providing free labor to a company that may use their work and not hire them. Hiring managers should be clear about how the work will be used. They may also consider offering compensation if the assignment requires more than a couple hours of someone’s time, or if they plan to use the work without hiring the candidate.

The key for early career candidates in particular is to ensure their time and efforts are respected. This is a win-win for employers: By providing clarity and transparency, they not only elicit the additional information they want from candidates, but they demonstrate that the organization is transparent and fair.

Equity is also imperative: Which candidates are being asked to complete assignments? Is the hiring team consistent in giving out assignments across ages, experience levels, and roles? There should always be a process and clear evaluation criteria in place to ensure fairness.

As we adapt to the rapidly evolving world of work, we must continue to think critically about each step in the hiring process. Candidate assignments can be a valuable tool, but only with appropriate respect for job seekers’ time and contributions.

With the right strategy, we can bridge the gap between generations in the workplace and build a hiring culture that values efficiency, talent, and integrity.

Eoin Driver is the global vice president of talent at Indeed.

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