Reconciling trade credit and AR Advance transactions is essential for maintaining accurate financial records. Whether you're offering trade credit or leveraging BlueTape AR Advance, proper reconciliation ensures transparency and financial clarity.
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. Tips & Best Practices
- 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.
- 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.
- 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.
- 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
- You issue an invoice to your customer (for example, a $10,000 invoice).
- 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.
- 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.
Sample Settlement Page for Trade Credit: This is what your settlement page will look like for a trade credit payment while it’s in the processing state. Look under the “Settlement” tab and then click on Trade Credit or AR Advance.
In this sample, the advance payment has been settled in the bank account. You can click on the transaction to view the transaction ID.
Sample Transaction Detail Page: Click anywhere on the transaction list to see more details such as in the image above.
Sample Settlement Page for Trade Credit: Once the final payment has been settled into your bank account, the status and details will update and an additional transaction ID will be shown.
Sample Settlement Pages for AR Advance: This is an example of how the settlement will look like for AR Advance.
3. Step-by-Step Account Reconciliation for Trade Credit and 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, you remove the full $10,000 from Accounts Receivable (Customer) and set up two new accounts. In most accounting systems, you will start by recording payment on the open invoice. However, you’ll need to account for the final payment, which will be paid once the customer pays BlueTape, and the transaction fee. 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 from BlueTape” for the final payment and your fee (invoice amount minus advance amount) the remaining $2,000 difference:
- Debit: “Due from BlueTape” >> $2,000
- 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 $10,000 invoice example with a $10 fee:
Step 3. Record the Final Payment (Net of 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:
- Debit (increase) your bank account for the final payment amount received:
- Debit: Bank Account >> $1,750
- Debit (increase) an expense account for the processing fee (e.g., “BlueTape Fee”, “Transaction Processing Fees” or “Bank Fees”):
- Debit: ACH Processing Fees >> $250
- Credit (decrease) “Due from BlueTape” for the final payment amount and transaction fee:
- Credit: “Due from BlueTape” >> $2,000
Example Journal Entry: Using the $10,000 invoice example with a $10 fee:
Step 4. Reconciling Your Bank Statements
- Advance Payment Recon
- Match the $8,000 deposit in your bank statement to your accounting entry.
- Confirm it ties to the correct invoice(s).
- Final Payment Recon
- Match the $1,750 deposit to the final settlement entry.
- Confirm the $250 fee is recorded correctly in your expense account.
- Settlement Page on your BlueTape Account
- In your BlueTape account, go to the settlement page. As shown in the following screenshot, you can see details of each transaction (invoice number and amount, advance amount, final payment, fees).
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- Your monthly statement detailing each transaction (invoice, advance, final payment, fees). Reconcile those statements with your ledger to ensure no discrepancies.