Factoring

Assignment by way of sale vs Assignment by way of security

 

Factor takes assignment of debt either by way of sale or by way of security.  Each type of assignment will have different accounting and legal treatment.

 

Assignment by way of sale

Under the assignment by way of sale, the debt is sold to the factor.

Legally the debt belongs to the factor and hence the factor does not have to file with ACRA .

In accounting, the debt is transferred from the client to the factor. Hence the debt disappears from the client's  book and the debt is reflected in the factor's book.

This is an important requirement for company which wants to remove the receivable from their book for window dressing.

 

Assignment by way of security

Under the assignment by way of security, the factor gives the loan and takes the debt as security.

Legally the debt belongs to the client. As the factor takes the assignment by security, they have to be registered with ACRA ( or registry of company) for it to be valid against the liquidator of the client.

In accounting, the debt remain with the client. The advance given to client is reflected as a loan in both the client's and the bank's book.

Under this arrangment, the client cannot remove the debt from their book.