actoring is a process whereby the factoring agent pays the

Company (the originator) for the factored invoices less any fees,
interest, dilutions or retention amount, based on contract
agreement. Receipt of the cash for factored invoices will result in
a balance sheet affect reducing the AR balance by the amount of
the factored invoices.

Factoring receivables provide the Company (the originator) with a

tool which will increase the cash flow based on accounts
receivable documents for certain customers. Once invoices are
selected by the factoring agent they need to be identified and
marked in SAP for tracking purposes as well as reconciliation.

There is a need to develop a process which will allow the

Company (the originator) to account for the factored transactions
and reconcile with the factoring agent. The bank account will be
established at the current House Bank and be a shared account
with the company and the factoring agent.

Customers will remit to the shared bank account for all their
invoices, both factored and non factored and the Company (the
originator) will have to reconcile with the factoring agent and
settle cash for non factored invoices. The single account for all
remittance is to not affect the customers process and not
indicate to them that invoices have been factored.

SAP provides the ability to mark factored invoices on the AR

transactions but that does not provide accounting functionality for
cash and balance sheet impacts. The cash accounting process
needs to be built in conjunction with the cash application and
clearing customer receivables.

The recommended solution for the Company (the originator) is to

implement the use of the AR Pledging Indicator and design a
solid reconciliation process for factoring accounts receivable.The
following solution details lay out what is required to evaluate and
ultimately the steps to implement a factoring process.

Process Proposal
1) Bank account established at the current House Bank, shared
with the Company (the originator) and the factoring agent.

2) Customer remittance will be directed to the new account for all

cash receipts.

3) The Company (the originator) will receive bank statement,

including the new account, to allow automatic cash application
process to remain the same.

4) Mark Customer invoices as factored through configured fields

AR Pledge Indicator and Text Field with identification (i.e.
DD/MM/YYYY + user ID)

5) Accounts receivable invoice will remain open on customer

account to allow normal servicing (i.e. collections, credit,
statements, aging, etc)

6) Cash received from factoring agent will debit cash and credit
AR Contra account to relieve balance sheet of factored AR.

7) Cash application will debit cash clearing account and credit

AR customer, clearing the invoices through normal post
processing.

8) Reconciliation performed daily to determine factored invoices

cleared and non factored invoices cleared.
a. Factored Invoices: Credit cash clearing and debit AR Contra
account for amount of factored invoices which were cleared. This
is done daily to true up the AR contra account for factored
invoices
b. Non-Factored Invoices: Credit cash clearing and debit Bank
Due To/Due from account. Performed daily to reconcile cash
clearing account and
indicate cash receivable from the bank for money they have on
non-factored invoices.

9) Settlement: Bank will submit cash to the Company (the

originator) (via EBS) for the amount of cash they hold for nonfactored invoices. Debit Cash and Credit Bank Due To/Due from.

Implementation Activities
1) Activate AR Pledging for the Company Code. (This allows the
AR Pledging Field/Flag to be configured and used on the customer
account or AR Invoice.

2) Configure the AR Pledging Indicator (Factor flag)

a. 01 = Offer
b. 02 = Factored

c. Field Status for customer master

d. Fields status for customer invoice

3) Electronic Bank Statement

a. Configure new account at house bank
b. Change GL account for cash entries in EBS
c. Create new BAI code and GL account determination for EBS

4) Add AR Pledging Field to any BW reports in AR

5) Reporting Requirement:
a. Define and evaluate what reporting requirements exist
b. Map to current / standard reports
c. Create new reports for reconciliation process or historical
reporting