Published: 14/07/2021
Although invoice finance is a relatively easy business finance solution for SMEs, it does come with a specific workflow that its users have to incorporate into their business operations, as well as specific accounting entries with which accountants need to be familiar.
In general, there are 5 steps to the invoice finance workflow from the client’s side.
There are specific accounting entries that need to be made when a business is using invoice finance. Accounting entries are made in the following instances.
Occurrence | Debit | Credit |
---|---|---|
Funds drawn against ledger | Bank (Current Asset) | Short term loan (Current Liability) |
When funds are drawn from the facility, this is similar to a short-term loan, secured against the unpaid invoices. The accounts receivable balance remains unchanged.
Occurrence | Debit | Credit |
---|---|---|
Debtor makes payment | Short Term Loan (Current Liability) | Accounts Receivable (Current Asset) |
Interest and fees should be posted as an expense in the income statement, balanced with an increase in the amount owed to the finance provider.
Occurrence | Debit | Credit |
---|---|---|
Interest & Fees Charged | Expenses (P&L) | Short Term Loan (Current Liability) |
After making these entries, the liability on the balance sheet will be reflective of what is owed to the invoice finance provider at that time. This should align with the balance shown on the client statement sent by the finance provider.
Another reconciliation step, which should be done at least monthly, is to match the accounting system to the client statement balance with the following calculation.
Another reconciliation step, which should be done at least monthly, is to match the accounting system to the client statement balance with the following calculation.
Drawdowns + Fees – Customer Receipts = Client Statement Balance.
Grapple’s innovative platform automates the steps outlined in the previous section. By linking directly with accounting software, the workflow is streamlined and reconciliation made easy. Grapple’s clients benefit from reduced time and money spent on the admin process of invoice finance while receiving tailored finance solutions and outstanding customer service