Account Reconciliation: Recourse AR Advance

Since Recourse AR Advance is based on a Recourse Invoice Purchase Agreement, it requires a different approach to account reconciliation. This guide covers best practices, manual reconciliation steps, and automated integration methods to help you accurately track payments, fees, and liabilities. Whether using BlueTape for trade credit financing or factoring, follow these steps to maintain clear financial records and streamline your reconciliation process.

1. Tips & Best Practices

Whether you are using BlueTape to offer trade credit to your customers or you use your in-house credit and then leverage BlueTape AR Advance to improve your cash flow, you can implement the following approaches to reconcile your accounts. 

1. Use a Dedicated Expense Account
   • Keep “Trade Credit Fees”, “Factoring Fees”, or “Finance Fees” in a dedicated account. This makes it easier to track your overall financing costs or the cost of offering financing.
2. Use a Dedicated Short Term Liability Account
   
   • Keep Advance payments in a short term liability account such as, “Factored Invoices”, or “Due to BlueTape” in a dedicated account. This makes it easier to track your overall factored invoices.
3. Maintain a Clear Audit Trail
   
   • Keep copies of invoices and BlueTape settlement reports in a dedicated folder.
   • Attach or link these documents to the corresponding journal entries in your accounting software.
4. Monitor Fluctuations in Fees
   
   • If your rate changes, be prepared for variations. Set up a process to confirm the final fee percentage for each invoice cycle.
5. Consult Your Accountant
   
   • Trade credit and AR Advance (factoring) arrangements can be accounted for in multiple ways (as a sale of receivables vs. financing). We recommend you treat this as a sale of your receivables. Confirm with your CPA which method best fits your business model and GAAP or IFRS requirements.

2. Understanding the Transaction Flow

1. You issue an invoice to your customer (for example, a $10,000 invoice).
2. BlueTape issues an advance based on the advance rate for the customer. For example: BlueTape advances 80% ($8,000) to you shortly after the invoice is approved for financing.
3. When the buyer eventually pays the invoice (to BlueTape), BlueTape deducts its seller fee (for example, a 2.5% seller fee would result in $250) and sends the remaining 17.5% (in this case, $1,750) to you as the final payment.

Transaction Example: 

• • Invoice Amount: $10,000.00
  • Fee Deducted by BlueTape: $250.00
  • Net Amount Deposited to Your Bank: $9,750.00

 

 

 

3. Step-by-Step Account Reconciliation for Recourse AR Advance Using a “Due from BlueTape” (or “Receivable from BlueTape”) Account

Step 1: Identify the Advance Payment

• Verify the advance amount deposited to your account on the settlement page of your BlueTape account or in your settlement report.

Step 2: Record the Advance from BlueTape

When you receive the advance, you’re effectively transferring the right to receive part of the invoice to BlueTape. In your accounting, in contrast to non-recourse AR Advance or Trade Credit, do NOT remove the invoice amount from Accounts Receivable (Customer). Instead, you will start with recognizing the advance payment as a liability. We recommend you add that to an account such as “Due to BlueTape.” At this stage, you don’t need to recognize the fees of financing or final payment. Here’s how you can structure the journal entry:

• Debit (increase) your bank account for the advance amount received:
  • Debit: Bank Account >> $8,000

• Debit (increase) “Due to BlueTape” for the advance payment received:  
  • Debit: “Due to BlueTape” >> $8,000

Step 3. Record the Final Payment and Fees

Later, when the customer pays BlueTape in full, BlueTape deducts its fee (for example, a 2.5% seller fee, which would result in $250) and sends you the final payment of $1,750. At this point:

1. Debit (increase) your bank account for the final payment amount received:
   • Debit: Bank Account >> $1,750
2. Debit (increase) an expense account for the processing fee (e.g., “BlueTape Fee”, “Transaction Processing Fees” or “Bank Fees”):
   • Debit: ACH Processing Fees >> $250
3. Credit (decrease) “Due to BlueTape” for the advance payment amount: 
   • Credit: “Due from BlueTape”  >> $8,000
4. Credit (decrease) Accounts Receivable for the full invoice amount (which closes out the invoice as fully paid):
   • Credit: Accounts Receivable >> $10,000

Example Journal Entry: Using the above example:

Step 4. Reconciling Your Bank Statements

1. Advance Payment Recon

• • Match the $8,000 deposit in your bank statement to your accounting entry.

2. Final Payment Recon

• • Match the $1,750 deposit to the final settlement entry.
  • Confirm the $250 fee is recorded correctly in your expense account.

3. Settlement Page on your BlueTape Account

• • In your BlueTape account, go to the settlement page. As shown in the following screenshot, you can see detail of each transaction (invoice number and amount, advance amount, final payment, fees)

4. Monthly Statements

• • Your monthly statement detailing each transaction (invoice, advance, final payment, fees). Reconcile those statements with your ledger to ensure no discrepancies.