USA Future Receivable advances

[marke23t1]

Future receivable advances of credit card charges with cash proceeds less than amount due, is it classified as a loan?

 

[Kat Maple]

Wow! You must use an Internet service provider that charges you $10 for each word you type!
Can you state your issue in a more complete description so we can help?

Thanks

Kat

 

[marke23t1]

Future receivable advances of credit card charges with cash proceeds less than amount due, is it classified as a loan?

The agreement states the factoring agreement is not a loan. However, It also states

"In any event the court deems that the purchaser has charged or received interest in excess of the highest applicable rate, the rate hereunder shall be automatically reduced to the maximum rate allowed by law and the purchaser shall promptly refund the purchaser in excess of the maximum allowable rate."

1. Would this meet the "true test" of a sales of a receivable or is it more properly characterized as a loan?
2. How would calculate the effective interest rate if it is deemed a loan, would it be based on the net proceeds $29,500 or obligation amount $37,800?

Obligation 37,800
Origination fee 750.00
Funding wire fee 50.00
Net proceeds 29,500.00

Would the entry be as follows?

Cash 29,500.00
Interest expense 7,500.00
Factoring fee 800.00
A/R 37,800.00

I really appreciate your help!

 

[Kat Maple]

The quotation pertains only to the usury laws and has nothing to do with deciding whether there was a true sale.

To calculate an effective interest rate you need to know the length of time involved, which you do not show above.
Also, a factor usually charges interest if the receivables are not realized in cash after a certain time, and you do not provide that info.
Lastly, are the receivables sold with or without recourse?

Thanks,

Kat

 

[marke23t1]

Kat,

The payment amount is $850 weekly. What amount is used in the calculation the obligation amount $37,800 or the net proceeds $29,500 amount received?

Thanks,

Mark

 

[Kat Maple]

Sample Receivable Factoring Excel Sheet: Effective Rates & Interest Rates

The following sample factoring excel sheet allows you to compare effective rates of factoring versus interest rates on bank financing.

www.driveyoursuccess.com

Hi Mark,

Please go thru the above to see what info you still need. One item is the rate (the example uses 6%) charged to you daily until the facor collects in full.