## f14-treatment-of-factoring-transactions-final — SECTION I: THE ISSUE

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### Background and operational features
- Factoring: a financial company (factor) buys trade accounts receivable from a supplier at a discount; receivables are non-tradable trade-related receivables arising from provision of goods, services, or work in progress.
- Factoring belongs to “Receivables Finance”: supplier receives early discounted payment; performed by specialized institutions or commercial banks.
- Two basic types:
  - Non-recourse factoring: factor assumes full risk of non-payment; supplier receives trade credit net of discount and has no additional obligation.
  - Recourse factoring: supplier holds partial or full responsibility for uncollectable receivables; factor initially pays a percentage and retains a “reserve”; supplier reimburses factor up to recourse liability if debtor defaults beyond reserve.
- Variations: explicit fees besides discount; partial/full recourse; significant reserves or no reserve; nominal interest; contractual limits on supplier liability.
- Distinction from invoice discounting: factoring commonly viewed as purchase/sale of invoices with transfer of legal claim; invoice discounting treats invoices as collateral for a loan and claim is not transferred.
- Existing statistical practice and guidance highlights:
  - BPM6 paragraph 5.72: trade credits sold to a third party should be reclassified as other accounts receivable/payable by the supplier.
  - 2008 SNA mentions factoring services but does not discuss factoring explicitly.
  - 2013 EDS Guide paragraph 6.10: similar reclassification guidance.
  - Monetary and financial statistics tendency: classify factoring claims as loans (ECB 2019 Manual on MFI Balance Sheet Statistics 4.3.9.15 recommends classifying factoring instruments as loans).
  - IMF MFSMCG paragraph 4.99: export bills discounted entail a loan to the debtor (interpretable as loan recording for factoring).
  - GFSM 2014 footnote 64 (paragraph 7.225) recommends classifying non-recourse factoring transactions (where debtor is a government agency) as loans; Eurostat provided similar guidance.
- Treatment of the discount under BPM6:
  - BPM6 paragraphs 3.82 and 9.33: stocks of other receivables are valued at nominal value and differences between nominal and transaction values are recorded as valuation changes in other changes in financial assets and liabilities account.
  - Some drafting team members argue BPM6 does not necessarily imply the discount should be excluded from income because factors are financial intermediary producers and should recognize income/output.
- IFRS 9: recommends factor assets be recognized based on amortized cost and income recorded as interest using the effective rate accrued over time; factoring services include money collection and accounting for payments.

### Issues for discussion
- Two main issues:
  1. Treatment of factoring transactions and claims in general: classification of instruments, valuation of stocks, treatment of factor income.
  2. Whether recourse factoring requires different treatment: treatment of accounts receivable, funds provided, factor income, nature of reserve and recourse.
- Specific questions:
  - Under recourse factoring, do accounts receivable remain on the supplier’s books (supplier bears economic risk), making funds provided by factor a supplier liability and factor income interest?
  - If recourse factoring is a true sale, how should reserve and recourse be treated: reserve as claim of supplier on factor (collateral) or as partitioned claim towards debtor; whether reserve remains as trade credit or is reclassified.
- Reverse factoring (Approved Payables Finance):
  - Buyer-led and typically without recourse; buyer pays finance provider.
  - Drafting team: reverse factoring follows same principles as ordinary factoring and supports debtor-financing treatment options.

### Options considered for non-recourse factoring (summary)
- Option 1 (status quo / clarification of BPM6 paragraph 3.82):
  - (a) Reclassify claims sold to other accounts receivable/payable.
  - (b) Value stocks at face value (minus any repayment on invoices plus any other nominal/contractual interest/fee receivable from buyer except the discount).
  - (c) Record the discount as valuation changes (IIP) rather than as income/sale.
  - If chosen, BPM7, 2008 SNA, and MFSMCG should include clarifications; imputation for factors’ assets recommended.
- Option 2 (treat discount as transaction in external accounts / record discount as income/sale) with sub-options:
  - Option 2.1:
    - Factor’s claim: Other accounts receivable.
    - Factor’s income: Fee.
    - Who pays factor’s income: Supplier.
    - FISIM: No.
    - Claim treated as outright sale; factor provides discounting service.
  - Option 2.2:
    - Factor’s claim: Other accounts receivable.
    - Factor’s income: Interest.
    - Who pays factor’s income: Supplier.
    - FISIM: No.
    - Treated like 2.1 but income labeled interest despite no explicit claim/liability between supplier and factor.
  - Option 2.3:
    - Factor’s claim: Loan.
    - Factor’s income: Interest and fee.
    - Who pays factor’s income: Debtor.
    - FISIM: Yes.
    - Factoring seen as indirect financing of debtor (trilateral); requires adjustments to goods and services account and retrospective valuation changes.
  - Option 2.4:
    - Factor’s claim: Loan.
    - Factor’s income: Fee.
    - Who pays factor’s income: Supplier.
    - FISIM: No.
    - Compromise: treat factor’s claim as loan against debtor but record discount as fee paid by supplier; loans approximated as zero-interest for FISIM purposes.
- Reclassification method at inception: choice between recording as transactions or as other changes in volumes applies to any option.

### Options considered for recourse factoring (Options 3.1—3.3)
- Option 3.1:
  - Treat recourse factoring the same as non-recourse factoring.
  - Recourse regarded as a guarantee granted by the supplier; reserve regarded as collateral held by the factor.
- Option 3.2:
  - Treat recourse factoring as a loan provided to the supplier.
  - Apply FISIM calculations.
  - Liability of debtor to supplier remains trade credit.
  - Reserve and recourse not recorded in macroeconomic statistics.
- Option 3.3:
  - Treat as partial outright sale for the portion beyond recourse liability; amount up to recourse liability remains under supplier ownership.
  - If reserve < recourse liability, difference constitutes a cash advance recorded as accounts payable by supplier to factor.
  - Discount treated as fee paid by supplier.

### Drafting team outcomes, preferences, and rationale
- Rejected Option 1: current manuals insufficient for consistent recording.
- Initial strong support for treating factor’s income as a fee (recognizing factor as producer of financial intermediation services).
- Drafting team support and evolution:
  - Option 2.1 initially supported by all except one member: follows BPM6 instrument treatment; income seen as fee paid by supplier.
  - Final drafting team proposal shifted to Option 2.4: majority (3 out of 4) favored moving from Option 2.1 to Option 2.4 because recording as a loan provides conceptual consistency with accounting and reduces compiler burden.
- Views on Options 2.2 and 2.3:
  - Option 2.2 rejected: inappropriate to treat discount as interest absent mutual claim/liability.
  - Option 2.3 not favored: three-way partitioning and retrospective goods revaluation too complex and burdensome.

### Consultations, compilation practice, and prevailing practices
- FITT consultation:
  - Four members preferred Option 2.1 for non-recourse; one member supported Option 2.3 (modified); three FITT members supported Option 3.1 for recourse; one supported Option 3.3.
  - FITT members generally supported reclassification via transactions.
- Global consultation and current practice:
  - Majority of respondents supported Option 2.1, but strong opposition existed to recording factoring claim as other accounts receivable/payable.
  - One-third of respondents preferred loans, influenced by MFS and GFS practice and references to Eurostat Decision of 2012 and ECB 2019 Manual.
  - Many countries currently record factoring as loans in macroeconomic statistics; IFRS 9 suggests amortized value with income via effective interest method.
  - Eurostat GFS recommends classifying non-recourse factoring as a loan and the discount as a fee.

### Drafting team and Committee/AEG agreed conventions (October 2022)
- Agreed recommendations (Committee and AEG, October 2022):
  - Treat non-recourse factoring per Option 2.4:
    - Classify claim on debtors as a loan.
    - Treat discount as fee/output paid by supplier (do not calculate FISIM for factoring services).
  - Treat recourse factoring per Option 3.1: same treatment as non-recourse factoring; recourse regarded as guarantee until called; reserve regarded as collateral.
  - Reject Option 1.
  - Instrument reclassification from trade credits to loans (for original borrower) should be recorded as a transaction in the financial account.
  - Treat entire difference between nominal value of receivable and cash paid by factor (minus reserve) as a fee (factor’s output) as a practical convention given compilation difficulties.
  - Manuals should explain conceptually ideal partitioning of service charge and interest (in line with Option 2.3), but adopt Option 2.4 as practical convention.
  - Further guidance to be provided in updated manuals and BPM Compilation Guide, including measurement under high inflation and credit risk; investigate business accounting practices; explicitly note reserve amounts should not be treated as part of fee/output.

### Numerical examples and illustrative accounting treatments (selected highlights)
- Option 1 example:
  - Invoice value 100; Discount 10; reclassification via Other Volume Changes (OVC); discount recorded as other valuation change.
- Option 2.1 example:
  - Invoice value 100; Discount 10.
  - Transaction: Fee 10 recorded in current account; Other accounts receivable 100 transferred to Factor; Cash -90 from Factor.
- Option 2.3 example:
  - Invoice value 100; Discount 10; Normal interest rate 5%.
  - Adjustment to goods account: Goods -10; FISIM 5.5 and Interest 4.5 recorded in period example.
- Option 2.4 example:
  - Invoice value 100; Discount 10; Partial non-payment example of 15.
  - Reclassification: trade credit -100; loan 100; Fee 10 in current account; Loan 100 recorded for Factor; Cash -90 to Factor.
- Option 3.1 example:
  - Invoice value 100; Discount 10; Reserve 20; Recourse 100.
  - Recourse treated as guarantee; classification and discount follow Option 2 treatments; reserve treated as collateral.
- Option 3.2 example (recourse as loan to supplier):
  - Invoice value 100; Discount 10; Normal interest rate 5%; Reserve 20; Recourse 50.
  - Transactions over period: FISIM 5.5 and Interest (against supplier) 4.5; Loans 80 recorded in example.
- Option 3.3 example (invoice divided in three parts):
  - Invoice value 100; Discount 10; Reserve 20; Recourse 45; Difference (cash advance) 25.
  - Post-transaction positions: Factor D 55; Supplier D 45; Factor S 25; Debtor S 45; Debtor F 55; Supplier F 25.

### Accounting, derecognition, and measurement (IFRS 9 and practice)
- IFRS derecognition criteria (paragraphs 3.2.4–3.2.6) determine whether transfer qualifies for derecognition based on transfer of contractual rights and transfer of risks and rewards.
- Measurement under IFRS 9:
  - Assets measured at amortised cost when (a) held in business model to collect contractual cash flows and (b) cash flows are solely payments of principal and interest.
  - Interest revenue via effective interest method; special rules for purchased or credit-impaired assets.
- Business accounting practices:
  - Non-recourse factoring typically recorded as true sale in factor’s and supplier’s books: supplier derecognizes receivable and records sale loss; factor recognizes claim and accrues discount using effective interest.
  - Recourse factoring: whether true sale occurred is key; if not, a loan from factor to supplier is recognized while claim on debtor may remain on supplier’s balance sheet.
  - Jurisdictional differences: some standards (e.g., Korean, US GAAP) may treat recourse differently; practice varies.

### Recourse versus non-recourse viewpoints (Annex VI synthesis)
- View One (supporting true sale for recourse factoring):
  - Factor collects cash flows; supplier’s recourse claim is contingent; risks/rewards largely transferred to factor; reserve recognized as supplier claim against factor; recourse call treated as guarantee call and analyzed as repurchase if called.
- View Two (partial true sale):
  - True sale applies only to invoice amounts net of recourse liability; supplier retains economic ownership for amount at risk; full recourse equates to loan from factor to supplier.
- Guidance note recommends flexibility and homogeneous treatment across parties for cross-country consistency.

### Classification of discount and instrument (Annex VII synthesis)
- Drafting team agreed discount should be reflected in macroeconomic accounts as output of financial intermediary rather than only as valuation change, recognizing discount contains a service (factoring fee) and an interest component.
- Discount components:
  - Factoring fee (service) and interest on funds advanced.
  - Where fee cannot be separately identified, discount should be classified as fee or interest and one category chosen for macroeconomic recording.
- Practical convention adopted: record discount (minus reserve) as fee/output paid by supplier under Option 2.4; do not calculate FISIM for factoring services.

*Source: IMF Guidance Note: f14-treatment-of-factoring-transactions-final — SECTION I: THE ISSUE.*

### SECTION I: THE ISSUE

### f14-treatment-of-factoring-transactions-final - SECTION I: THE ISSUE

### Background
- Factoring is a transaction in which a financial company (factor, which can be a bank, a specialized factoring company, or other financial organization) buys trade accounts receivable from a supplier at a discount. The accounts receivable concerned are non-tradable trade-related receivables arising from the provision of goods, services, or work in progress.
- Factoring belongs to the broader category of “Receivables Finance”, where a supplier receives an early discounted payment for his trade account receivables. Such transactions are performed by specialized financial institutions or by commercial banks and help bridge the trade cycle funding gap.
- Two basic types of factoring:
  - Non-recourse factoring: the factor assumes the full risk of non-payment by the debtors at maturity and charges the supplier a higher percentage of the receivables (“discount”). The supplier immediately receives the full amount of the trade credit/accounts receivable net of the discount and has no additional obligation.
  - Recourse factoring: the factor holds the supplier partly or fully responsible for uncollectable receivables at maturity (“recourse liability”). The factor initially pays only a percentage of the accounts receivable and retains a “reserve”; after collection the residual reserve amount (net of discount) is passed to the supplier. If the debtor defaults beyond the reserve, the supplier must reimburse the factor up to the recourse liability plus any interest/fee.
- Variations across arrangements: explicit fees besides the discount, partial or full recourse, significant reserves or no reserve, nominal interest on funds provided, contractual limits on supplier liability.
- Distinction from loan/advance-based trade financing: factoring commonly viewed as purchase/sale of invoices with transfer of legal claim to the factor; invoice discounting treats invoices as collateral for a loan and the claim is not transferred.
- Existing statistical guidance and differing practices:
  - BPM6 and 2008 SNA: BPM6 paragraph 5.72 states trade credits sold to third party should be reclassified as other accounts receivable/payable by the supplier. 2008 SNA does not discuss factoring but mentions factoring services as services specialized financial corporations can provide.
  - External Debt Statistics: 2013 EDS Guide paragraph 6.10 states similar reclassification.
  - Monetary and financial statistics (MFS) tendency: classify factoring claims as loans. 2019 Manual on Monetary and Financial Institution Balance Sheet Statistics of the ECB (4.3.9.15) recommends classifying factoring instruments as loans and suggests different counterpart treatments by factoring type. IMF MFSMCG paragraph 4.99 requires export bills discounted entail a loan to the debtor, which could be interpreted as implying a loan recording for factoring.
  - GFSM 2014 footnote 64 (paragraph 7.225) recommends classifying non-recourse factoring transactions (where the debtor is a government agency) as loans; Eurostat provided similar guidance.
- Treatment of the discount earned by factors under BPM6:
  - BPM6 paragraphs 3.82 and 9.33 suggest valuing stocks of other receivables at nominal value and reconciling with transactions; hence discounts on factoring could be recorded as valuation changes rather than income/sale. BPM6 paragraph 3.82: “For loans, deposits, and other accounts receivable/payable sold at a discount, the transaction values recorded in the financial account may differ from the nominal values recorded in the international investment position. Such differences are recorded as valuation changes in the other changes in financial assets and liabilities account.”
  - Some GN drafting team members argue BPM6 does not necessarily imply discount should be excluded from income because factors are financial intermediary producers and should recognize income/output.
- IFRS 9 guidance: does not mention factoring explicitly but recommends factor assets be recognized based on amortized costs and income recorded as interest using the effective rate, accrued over time. Factoring also includes services of money collection and accounting for payments.

### Issues for Discussion
- Two separate issues:
  1. Treatment of factoring transactions and claims in general (classification of instruments, valuation of stocks, treatment of factor income).
  2. Whether recourse factoring requires a different treatment (treatment of accounts receivable, funds provided, income of factor, nature of reserve and recourse).
- Specific questions:
  - For recourse factoring, whether accounts receivable remain on the supplier’s books (reflecting supplier bearing economic risks), in which case funds provided by the factor are liabilities of the supplier and factor income should be recorded as interest.
  - If recourse factoring is treated as a true sale, how the reserve and recourse liability should be treated: reserve as a claim of the supplier towards the factor (collateral) or as a partitioned claim towards the debtor; whether reserve remains as trade credit on supplier balance sheet or is reclassified.
- Reverse factoring (Approved Payables Finance) considerations:
  - Reverse factoring is buyer-led and typically without recourse; buyer pays the finance provider. Business accounting and statistical treatment for reverse factoring follow the same principles as ordinary factoring according to the drafting team, supporting debtor-financing treatment options.

### Issue 1 — Treatment of Factoring Transactions and Claims
- Non-recourse factoring presents a true sale of trade receivable by the supplier; BPM6 paragraph 5.72 treats such a sale as reclassification from trade credit to accounts receivable/payable.
- MFS tendency to treat factoring as loans creates a divergence requiring a single recommended treatment in macroeconomic statistics: choice among loans, trade credits, deposits (reserve), or other accounts receivable.
- Question whether instrument reclassification at inception should be recorded as transactions or as other changes in volumes.
- Treatment of the discount:
  - General SNA/BPM convention: difference between nominal value and selling price recorded as revaluations for instruments measured at nominal value.
  - Counterargument: factor’s purchase of claims is an intermediation business with running and funding costs; discounts should be recorded as factor’s income/sale (remuneration of intermediation) to avoid producing a producer with costs but no output.
- Who benefits economically (supplier vs debtor) affects classification of instrument, discount, reserve, and recourse. Typically supplier seeks factoring and benefits via improved liquidity; however, reverse factoring suggests debtor-initiated financing and supports debtor-financing perspective.

### Issue 2 — Treatment of Recourse Factoring
- Two questions:
  - Are accounts receivable under recourse deemed to remain on supplier books until contract end (supplier retains economic risk), making funds from factor a supplier liability and factor income interest?
  - If recourse factoring is a true sale, how should reserve and recourse be treated: reserve as claim of supplier on factor (collateral) or partitioned claim towards debtor?
- Reserve and recourse may differ in amount; difference may remain on supplier balance sheet and require instrument reclassification.

### Options to Consider
- The drafting team considered:
  - Option 1 and Options 2.1—2.4 for Issue 1 (treatment of factoring transactions and claims).
  - Options 3.1—3.3 for Issue 2 (treatment of recourse factoring).
  - Reclassification method at inception (transactions vs other volume changes) can apply to any option. Annex III and Annex IV provide detailed discussion and numerical examples.
- Option 1:
  - Keep status quo and clarify BPM6 paragraph 3.82 on “other accounts receivable/payable sold at a discount” applies to factoring.
  - Under Option 1:
    - (a) Reclassify claims sold to other accounts receivable/payable.
    - (b) Value stocks at face value (minus any repayment on invoices plus any other nominal/contractual interest/fee receivable from buyer except the discount).
    - (c) Record the discount as valuation changes (in the integrated international investment position (IIP)) rather than as income/sale.
  - BPM7 should include more details on classification and valuation following existing guidelines; similar updates recommended for 2008 SNA and MFSMCG.
  - If Option 1 chosen, imputation for factors’ assets in their balance sheet should be made.
- Options for non-recourse factoring (claim of factor always against debtor as undisputed transfer of claim):
  - Option 2.1: Factor’s claim against debtor treated as other accounts receivable; factoring income as a fee paid by the supplier. Factoring classified as outright sale; factor provides discounting service similar to cheque discounting or payment facilitation.
  - Option 2.2: Factor’s claim against debtor treated as other accounts receivable; factoring income as interest paid by the supplier. Factor seen as providing funds to the supplier; income treated as interest despite absence of explicit liability/asset between factor and supplier.
  - Option 2.3: Indirect financing by factor to debtor treated as a loan; factoring income as interest paid by the debtor and fees paid by the debtor and the supplier. Factoring seen as a trilateral arrangement with implicit joint agreement on financing. Additional calculations required for financial intermediation services indirectly measured (FISIM) paid by the debtor and an adjustment to the goods and services account.
  - Option 2.4: Indirect financing by factor to debtor treated as a loan; factoring income as a fee paid by the supplier. Compromise between Option 2.1 (income as fee) and Option 2.3 (claim as loan owed by debtor).

*IMF Guidance Note: f14-treatment-of-factoring-transactions-final — SECTION I: THE ISSUE*

### 24.      Table 1 summarizes the options for the treatment of non-recourse factoring.

### f14-treatment-of-factoring-transactions-final - 24.      Table 1 summarizes the options for the treatment of non-recourse factoring.

### Summary of proposed treatments for non-recourse factoring (Table 1)
- Option 2.1
  - Factor’s claim: Other accounts receivable
  - Factor’s income: Fee
  - Who pays factor’s income: Supplier
  - FISIM: No
- Option 2.2
  - Factor’s claim: Other accounts receivable
  - Factor’s income: Interest
  - Who pays factor’s income: Supplier
  - FISIM: No
  - Other treatments: No positions between supplier and factor
- Option 2.3
  - Factor’s claim: Loan
  - Factor’s income: Interest and fee
  - Who pays factor’s income: Debtor
  - FISIM: Yes
  - Other treatments: Adjustment to goods and services account (see Annex III and IV)
- Option 2.4
  - Factor’s claim: Loan
  - Factor’s income: Fee
  - Who pays factor’s income: Supplier
  - FISIM: No

### Proposed treatments for recourse factoring (Options 3.1–3.3)
- Option 3.1
  - Treat recourse factoring the same as non-recourse factoring.
  - Recourse regarded as a guarantee granted by the supplier; reserve regarded as collateral held by the factor.
- Option 3.2
  - Treat recourse factoring as a loan provided to the supplier.
  - Apply calculations for FISIM.
  - Liability of the debtor to the supplier remains as trade credit.
  - Reserve and recourse not recorded in macroeconomic statistics.
- Option 3.3
  - Treat recourse factoring as a partial outright sale of invoices corresponding to the part beyond the recourse liability.
  - Amount up to the recourse liability remains under supplier ownership (risk of un-collectability remains with supplier).
  - If reserve is lower than recourse liability, difference constitutes a cash advance and is recorded as accounts payable by the supplier to the factor.
  - Discount earned by the factor is treated as a fee paid by the supplier.

### Drafting team outcomes, preferences, and rationale
- Rejected Option 1: Current guidance in the manuals is not sufficient for proper recording of factoring transactions in macroeconomic statistics.
- Preference for recording factor’s income as a fee (recognizing factor as producer of financial intermediation services), supported by most drafting team members.
- Support and reasoning for Option 2.1 (initial preference)
  - Supported by all except one drafting team member.
  - Follows current BPM6 treatment of the instrument.
  - Source of factor’s income seen as the supplier; factor provides service (discount as “lump-sum” fee).
  - Interest treatment considered incorrect absent an actual claim against the supplier.
- Shift to Option 2.4 (final drafting team proposal)
  - Majority of drafting team (3 out of 4) proposed changing recommendation from Option 2.1 to Option 2.4.
  - Rationale: recording as a loan is a better compromise for conceptual consistency with accounting and data compilation practices and less burdensome for compilers.
- Views on Options 2.2 and 2.3
  - Option 2.2 rejected: no mutual claim/liability between supplier and factor; discount treated as interest considered inappropriate.
  - Option 2.3 not favored: three-way partitioning of discount too complex; requires revision of trade data and increases compilers’ burden.

### Treatment of recourse factoring (drafting team and alternate view)
- Majority support for Option 3.1 (treat recourse as non-recourse)
  - Main argument: recourse is not actual liability of supplier until activated; viewed as a guarantee; reserve treated as collateral and liability of factor vis-à-vis supplier; factor collects flows supporting view of true sale.
- Alternate (economic ownership) view
  - Recourse liability treated per economic ownership: risks transferred to factor except for invoices within recourse liability.
  - If recourse exceeds reserve, difference treated as cash advance recorded as other accounts payable by supplier to factor.
  - At end of recourse period, supplier pays difference if bad debt > reserve; supplier receives difference if reserve > bad debt.

### Reclassification and recording conventions
- Strong support for reclassification via recording of transactions rather than changes in positions.
  - Reclassification seen as repayment of trade credit and creation of new liability.
  - Part of contract remaining under supplier economic ownership should be reclassified to other accounts receivable via transactions.
- Agreement to treat factor’s discount as fee/output and not revaluation, recognizing factor’s role as financial intermediary and producer of financial services.
- Agreed convention (Committee and AEG, October 2022)
  - Most members supported Option 2.4 for non-recourse factoring and Option 3.1 for recourse factoring.
  - All members supported rejecting Option 1.
  - Instrument reclassification from trade credits to loans (for original borrower) should be recorded as a transaction in the financial account.
  - Members agreed to treat entire difference between nominal value of receivable and cash paid by factor (minus the reserve) as a fee (factor’s output), as a practical convention given compilation difficulties.
  - Manuals should explain conceptually ideal treatment partitioning service charge and interest (in line with Option 2.3), but adopt Option 2.4 as practical convention.

### Consultations, compilation practice, and additional considerations
- FITT consultation
  - Four members preferred Option 2.1 for non-recourse factoring; one member supported Option 2.3 (with modification); three FITT members supported Option 3.1 for recourse; one supported Option 3.3.
  - FITT members generally supported reclassification via transactions.
- Global consultation and current practice
  - Majority of respondents supported Option 2.1, but there was strong opposition to recording factoring claim as other accounts receivable/payable.
  - One-third of respondents preferred loans, largely based on current practice accepted in the MFS and GFS and references to Eurostat Decision of 2012 and ECB 2019 Manual.
  - Many countries currently record factoring as loans in macroeconomic statistics; IFRS 9 suggests recording factoring based on amortized value accruing interest using effective rates similar to loans.
  - Eurostat GFS recommends classifying non-recourse factoring as a loan and the discount as a fee.
- Cross-border and captive arrangements
  - Cross-border claim between factor and debtor may indicate implicit financing by factor and creditworthiness assessment like a loan.
  - Captive intragroup financial institutions acting as factors for fellow enterprises resemble group financing and would be classified as loans.

### Final recommendations, conventions, and further actions
- Recommended convention adopted by Committee and AEG (October 2022)
  - Treat non-recourse factoring per Option 2.4: classify claim on debtors as a loan; treat discount as fee/output paid by supplier; do not calculate FISIM for factoring services.
  - Treat recourse factoring per Option 3.1: same treatment as non-recourse factoring.
  - Provide additional guidance in updated manuals and BPM Compilation Guide, including practical guidance and measurement of output under conditions of high inflation and credit risk.
  - Further investigate actual business accounting practices and explicitly note that amounts retained as reserve should not be treated as part of the fee/output.
- Suggest elaboration on other trade finance instruments in updated manuals or compilation guides (examples in BOPCOM 17/21 referenced for related instruments).

*Source: IMF guidance note excerpts on the treatment of factoring transactions (BPM6 guidance and related consultation outcomes).*

### 5.45 for criteria for reclassification).

### Treatment of Factoring Transactions

### Valuation principles for loans, deposits, and trade claims
- Positions in nonnegotiable instruments (loans, deposits, other accounts receivable/payable) are recorded at nominal value (see paragraphs 7.40–7.44; repeated in multiple manuals).
- When transactions in these instruments occur, they are valued at market prices; transaction prices are often less than nominal values because the market price takes account of the possibility of default.
- To reconcile market-valued transactions with nominal-valued positions:
  - The seller records other price changes during the period in which the sale occurs equal to the difference between the nominal and the transaction value.
  - The buyer records an opposite amount as other price changes.
- Loan positions recorded at nominal value mean deriving transactions from positions is relatively straightforward for loans denominated in domestic currency; for loans sold at discount, transaction values in the financial account may differ from IIP nominal values and such differences are recorded as valuation changes in the other changes in financial assets and liabilities account.

### Classification of trade credit, bills of exchange, and acceptances
- Trade credit and advances exclude loans to finance trade made by an institutional unit other than the supplier of the good or service; such financing is classified under loans.
- Trade bills drawn on an importer and discounted by an exporter become a claim by a third party on the importer; negotiable instruments should be classified as securities.
- Acceptances are classified within loans, debt securities, or trade credit depending on instrument characteristics:
  - Banker’s acceptances eligible for rediscounting are usually classified as debt securities.
  - Acceptances ineligible for rediscounting are designated as other acceptances and classified as loans or trade credit depending on their nature.
- For classification by debtor, a BA is attributed to the economic sector of the drawee (importer) who is the original issuer.
- Holdings of own acceptances (a DC’s liability to itself) should be deducted from the liability account for bankers’ acceptances outstanding; repurchased own bankers’ acceptances can be reintroduced as debt securities if rediscounted.

### Factoring: operational features and statistical recording
- Factoring: an MFI (or other factor) purchases accounts receivable (invoices) from a third party (the factoring client) at a price lower than face value, thereby charging fees and interest; the factor manages collection and customers pay the factor directly.
- Factoring operations by MFIs should be recorded as loans.
- Factoring types:
  - Non-recourse factoring: the factoring company assumes the full risk of default by the customer; fees and interest are charged immediately to the factoring client; the client receives the full amount of the trade credit net of these charges. For counterparty sector classification in non-recourse factoring, the customers are the counterparty because the factoring company assumes the risk.
  - Recourse factoring: the factoring client retains the risk of default; the factor pays initially a percentage and retains a reserve as collateral; after collection the factor transmits proceeds net of advances and charges to the client; the ultimate debtor (factoring client) is the counterparty of the loan in recourse factoring.
- Factoring operations should be recorded at the value of the invoice less the discount retained as collateral, not at fair value as allowed under international accounting standards.
- Forfaiting operations are treated analogously to non-recourse factoring.
- Fees and interest charges of non-recourse factoring are usually higher than those of recourse factoring due to higher risk transfer.

### Accounting and derecognition (IFRS 9) and measurement
- An entity shall derecognise a financial asset only when: (a) contractual rights to cash flows expire, or (b) it transfers the financial asset and the transfer qualifies for derecognition per paragraphs 3.2.4–3.2.6.
- A transfer is a derecognition-qualifying transfer if the entity either transfers contractual rights to receive cash flows or retains rights but assumes obligation to pay eventual recipients and meets all three conditions in paragraph 3.2.5 (no obligation to pay unless cash collected; prohibited from selling/pledging the original asset except as security to eventual recipients; obligation to remit cash flows without material delay and not reinvest except in cash or cash equivalents during short settlement period).
- Evaluation of retained risks and rewards (paragraph 3.2.6):
  - If substantially all risks and rewards transferred → derecognise the financial asset and recognise rights/obligations retained.
  - If substantially all risks and rewards retained → continue to recognise the financial asset.
  - If neither transferred nor retained substantially → assess control; if no control retained → derecognise; if control retained → continue to recognise to extent of continuing involvement.
- Measurement guidance:
  - A financial asset is measured at amortised cost if (a) held within a business model whose objective is to collect contractual cash flows and (b) contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest.
  - At initial recognition, except for trade receivables within scope of paragraph 5.1.3, measure a financial asset or liability at fair value plus/minus transaction costs if not at fair value through profit or loss.
  - Interest revenue is calculated using the effective interest method, with special rules for purchased or originated credit-impaired financial assets and subsequent credit-impaired assets.

### Operational guidance and exceptional adjustments
- When provision of an asset and related payment do not occur simultaneously, and the time gap is unusually long with very large trade credit amounts, implicitly an interest fee may be charged; in such extreme cases, actual payments should be adjusted for accrued interest to arrive at the correct value of the asset transferred. Such adjustments are not recommended for normal trade credit.
- Trade-related credit (trade credit, trade bills, and credit provided by third parties to finance trade) is identified as a concept in External Debt Statistics and should be compiled as a supplementary item where significant.

### Annex II — Factoring terminology (select definitions preserved)
- Supplier (buyer, creditor, exporter): Unit that provides goods, services, or implements work that is in progress to debtor.
- Debtor (importer, purchaser): Unit that purchases goods, services or order works from supplier.
- Bill: A non-negotiable document that confirms the liability of Debtor against the supplier for provision of goods, services or works in progress.
- Factor: Financial institution that purchases bill from supplier.
- Factoring: Trade finance instrument when factor buys the bill from supplier.
- Reserve: Amount of invoice under recourse factoring contract that the factor holds until full repayment by the debtor.
- Recourse: Amount for which the supplier retains the risk of uncollectability under recourse factoring; factor has right to claim unpaid amount not exceeding the recourse amount from the supplier.
- Non-recourse factoring: Agreement when the bill is sold to factor by supplier; the factor takes all benefits and risks associated with the bill and the supplier has no obligation regarding the bill.
- Nominal value: The value outstanding amount that the debtor owes to the supplier (to factor after the purchase), composed of the outstanding principal amount including any accrued nominal interest.
- Discount: The difference between nominal principal value and the transaction value in factoring transactions.

*Source: IMF — Treatment of Factoring Transactions.*

### Annex III. Details of Discussions on the Proposed Options

### 1. Prior to Transaction

### 1. Prior to Transaction

### Initial positions (Assets and Liabilities)
- Assets (From point of view / Against Trade credit)
  - Supplier D 100
  - Factor 0
- Liabilities (From point of view / Against Trade credit)
  - Debtor S 100

### Reclassification via Transactions
- Reclassification entries (Factor / Supplier / Debtor)
  - NAFA NIL / NAFA NIL / NAFA NIL
  - Trade credit: Supplier -100 ; Debtor -100
  - Other accounts receivable: Supplier 100 ; Debtor 100

### Transaction (cash flows and account movements)
- Current account
  - Fee 10 (Export/Import entries showing 10)
- Financial account (NAFA NIL for all parties)
- Other accounts receivable (transferred amount of invoice)
  - Supplier: 100 (credit) ; Debtor: -100 (debit)
- Other accounts receivable (collateral)
  - Supplier: 20 (credit) ; Debtor: 20 (debit)
- Cash
  - Supplier: -70 ; Debtor: 70

### Positions after transaction (Balances classified as Other Accounts (OA))
- Assets (From point of view / Against OA)
  - Factor D 100
  - Supplier F 20
- Liabilities (From point of view / Against OA)
  - Factor S 20
  - Debtor F 100

### Outcomes: Full Repayment
- Financial account / NAFA NIL for all parties
- Other accounts receivable (invoice)
  - Factor: -100 ; Debtor: -100
- Other accounts receivable (collateral)
  - Supplier: -20 ; Debtor: -20
- Cash
  - Factor: 80 ; Supplier: 20 ; Debtor: -100

### Outcomes: Full Non-Payment
- Financial account / NAFA NIL for all parties
- Other accounts receivable against Debtor
  - Factor: -100 ; Debtor: -100
- Other accounts receivable against Supplier
  - Factor: 0 ; Supplier: -20 ; Debtor: -20 ; Supplier-side 0
- Trade credit against Debtor
  - Supplier: 100 ; Debtor: 100
- Cash
  - Factor: 80 ; Supplier: -80

- Resulting positions (From point of view Against P0 / Transactions / Other changes / P1)
  - Assets
    - Factor D (OA) 100 -> Transactions -100 -> P1 0
    - Supplier D (trade credit) 0 -> Transactions 100 -> P1 100
    - Supplier F (collateral) 20 -> Transactions -20 -> P1 0
  - Liabilities
    - Debtor S (trade credit) 0 -> Transactions 100 -> P1 100
    - Debtor F (OA) 100 -> Transactions -100 -> P1 0
    - Factor S (OA) 20 -> Transactions -20 -> P1 0

### Bankruptcy of debtor (illustrative)
- Assets
  - Supplier D (trade credit) 100 -> Other changes -100 -> P1 0
- Liabilities
  - Debtor S (trade credit) 100 -> Other changes -100 -> P1 0

---

### Option 3.2 — Recourse Factoring Treated as a Loan to the Supplier

### Key parameters (example)
- Invoice value 100
- Other accounts receivable = OA
- Discount 10
- Normal interest rate 5%
- Reserve 20
- Recourse 50
- S–supplier, F–Factor, D–Debtor

### Transactions over the period (Factor / Supplier / Debtor)
- Current account
  - FISIM 5.5 recorded (Factor: 5.5; Supplier: 5.5)
  - Interest (against supplier) 4.5 (Factor: 4.5; Supplier: 4.5)
- Financial account (NAFA NIL for all)
- Loans
  - Factor: 80 (asset) ; Debtor: -80 (liability)
- Cash
  - Supplier: -70 ; Debtor: 70

### Positions after period
- Assets (From point of view / Against OA)
  - Factor S (Loan) 80
  - Supplier D 100
- Liabilities (From point of view / Against OA)
  - Supplier F (Loan) 80
  - Debtor S 100

### Full Repayment (entries)
- Financial account / NAFA NIL for all
- Loan
  - Factor: -80 ; Supplier: -100 ; Debtor: -80 ; Debtor: -100
- Cash
  - Factor: 80 ; Supplier: 20 ; Debtor: -100

### Full Non-Payment (entries)
- Financial account / NAFA NIL for all
- Loan
  - Factor: -80
- Cash
  - Factor: 80 ; Supplier: -80

- Resulting positions (From point of view Against P0 / Transactions / Other changes / P1)
  - Assets
    - Factor D (Loan) 80 -> Transactions -80 -> P1 0
    - Supplier D (trade credit) 100 -> Transactions 100 -> P1 100
  - Liabilities
    - Debtor S (trade credit) 100 -> Transactions 100 -> P1 100
    - Supplier F (OA) 80 -> Transactions -80 -> P1 0

### Bankruptcy of debtor (illustrative)
- Assets
  - Supplier D (trade credit) 100 -> Other changes -100 -> P1 0
- Liabilities
  - Debtor S (trade credit) 100 -> Other changes -100 -> P1 0

---

### Option 3.3 — Invoice Divided into Three Parts with Different Treatments

### Key parameters (example)
- Invoice value 100
- Other accounts receivable = OA
- Discount 10
- Reserve 20
- Recourse 45 (always larger than or equal to reserve)
- Difference between Reserve and Recourse (cash advance) 25
- S–supplier, F–Factor, D–Debtor

### Prior to transaction
- Assets (From point of view / Against Trade credit)
  - Factor 0
  - Supplier D 100
- Liabilities (From point of view / Against Trade credit)
  - Debtor S 100

### Reclassification via Transactions
- NAFA NIL for all
- Trade credit: Supplier -100 ; Debtor -100
- Other accounts receivable: Supplier 100 ; Debtor 100

### Transaction (detailed entries)
- Current account
  - Fee 10 (Export/Import)
- Financial account (NAFA NIL for all)
- Other accounts receivable plus fee
  - Factor: 55 ; Supplier: -55
- Other accounts receivable (against the supplier)
  - Factor: 25 ; Supplier: 25
- Cash
  - Supplier: -70 ; Debtor: 70

### Positions after transaction (Against OA)
- Assets
  - Factor D 55
  - Supplier D 45
  - Factor S 25
- Liabilities
  - Debtor S 45
  - Debtor F 55
  - Supplier F 25

### Full Repayment
- Financial account / NAFA NIL for all
- Other accounts receivable
  - Factor: -55 ; Supplier: -45 ; Debtor: -100
- Other accounts receivable (against the supplier)
  - Factor: -25 ; Supplier: -25
- Cash
  - Factor: 80 ; Supplier: 20 ; Debtor: -100

### Full Non-Payment
- Financial account / NAFA NIL for all
- Other accounts receivable against supplier
  - Factor: -25 ; Supplier: -25
- Cash
  - Factor: 25 ; Supplier: -25

- Resulting positions (From point of view Against P0 / Transactions / Other changes / P1)
  - Assets
    - Factor S (OA) 25 -> Transactions -25 -> P1 0
    - Factor D (OA) 55 -> Transactions 55 -> P1 55
    - Supplier D (OA) 45 -> Transactions 45 -> P1 45
  - Liabilities
    - Debtor F (OA) 55 -> Transactions 55 -> P1 55
    - Debtor S (OA) 45 -> Transactions 45 -> P1 45
    - Supplier F (OA) 25 -> Transactions -25 -> P1 0

### Non-Payment scenarios with partial write-offs
- Non-Payment 20 equal to Reserve, then Write-Off
  - Other accounts receivable against debtor: Factor -55 ; Supplier -25 ; Debtor -80
  - Other accounts receivable against supplier: Factor -25 ; Supplier -25
  - Cash: Factor 80 ; Debtor -80
  - Resulting asset/liability movements show Supplier D (OA) 20 and Debtor S (OA) 20 remaining after write-off adjustments
- Non-Payment 15, then Write-Off
  - Other accounts receivable against debtor: Factor -55 ; Supplier -30 ; Debtor -85
  - Other accounts receivable against supplier: Factor -25 ; Supplier -25
  - Cash: Factor 80 ; Supplier 5 ; Debtor -85
  - Resulting asset/liability movements show Supplier D (OA) 15 and Debtor S (OA) 15 remaining after write-off adjustments

---

### Annex V — Business Accounting (selected points)
- The guidance note states that factoring transactions are recorded differently in factor’s, supplier’s, and debtor’s accounting books; generally debtor continues to show accounts payable with no change due to factoring.
- Non-recourse factoring is recorded as true sale in factor’s and supplier’s balance sheets:
  - Supplier derecognizes accounts receivable and records sale loss immediately.
  - Factor recognizes claim equal to cash paid; discount receivable is accrued over the instrument’s life.
  - Initial recognition of instrument purchased equals the amount paid; effective interest rate is calculated based on future determined flows; IFRS 9 5.4.1 requires interest revenue be calculated by effective interest method.
- Where a financial asset meets IFRS 9 4.1.2 conditions (business model held to collect contractual cash flows; cash flows solely payments of principal and interest), measurement at amortised cost applies.
- For recourse factoring, main question is whether a true sale occurred; if not, a loan should be recognized from factor to supplier while the claim on debtor may remain on supplier’s balance sheet.
- IFRS derecognition criteria (3.2.3–3.2.6) and decision-tree guidance inform whether derecognition is appropriate.
- Accounting practice differs across jurisdictions:
  - Korean standards may require recording recourse factoring as loan.
  - US GAAP (ASC 860 paragraph 10-40-5; FAS 140 paragraph 9 and 113) focus on contract conditions and recommend derecognition if debtor creditability is not questionable.

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### Annex VI — Discussion on Recourse vs Non-Recourse Factoring (summary of views)
- The guidance note reports two principal views on recourse factoring:
  - View One: Recourse factoring generally meets true sale criteria because:
    - Factor collects cash flows from debtor.
    - Supplier’s recourse claim is viewed as contingent rather than actual.
    - Risks/rewards largely transferred to factor given rarity of debtor defaults; collateral and discounts reduce factor’s exposure.
    - Cash reserve held by factor should be recognized as a claim of the supplier against the factor; a recourse call is treated as a call on a guarantee and, if called, analyzed as reacquisition/repurchase of the claim by the supplier.
  - View Two: True sale should apply only to invoice amounts net of the “recourse liability” because:
    - Supplier retains economic ownership for amount at risk of uncollectability.
    - In case of full recourse (supplier retains essentially all risk), the factor effectively provides a loan equal to the full amount.
    - This view aligns with ECB manual on MFI statistics recommending recourse factoring be treated as a loan to the supplier.
- The guidance note recommends flexibility where accounting or legal frameworks across jurisdictions assimilate recourse factoring to collateralized lending and encourages homogeneous treatment across parties to achieve cross-country consistency.

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### Annex VII — Classification of the Discount and the Instrument (selected points)
- The drafting team did not reach full agreement on whether paragraph 3.82 of BPM6 treats the discount as revaluation, but agreed the discount should be reflected in macroeconomic accounts as output of financial intermediary.
- Analogies with 2008 SNA paragraphs 6.160c and 6.170–6.174 (ESA 2010 paragraph 3.73) support partitioning purchase and resale prices to recognize a service component; this suggests treating factors’ discount as income rather than revaluation for specialized financial intermediaries.
- The discount conceptually consists of two components: a factoring fee and interest on funds advanced.
  - Accounting standards generally require using the effective interest method to record and accrue income as interest in the factor’s income statement.
  - Supplier may show the discount as fee or loss on sale; timing differences may arise because supplier may expense the full discount upon factoring while factor accrues it over the instrument’s life.
- Where a fee cannot be separately identified, the discount should be classified as fee/interest and one category chosen for macroeconomic recording.

*Source: IMF Guidance Note on the Treatment of Factoring Transactions.*

### 5.      As it was mentioned in section issues, answer to question, whether the factoring is

### Treatment of Factoring Transactions

### Financing perspective and implications for classification
- Whether factoring constitutes financing of the debtor or the creditor has an important impact on how to classify the instrument and the income.
- The factor paying the supplier does not prevent viewing the arrangement as lending to the debtor, analogous to financial leasing where funds are paid directly to the manufacturer but financing is of the lessee. In these cases the claim is against the party that has irrevocably committed to repay.
- The debtor “accepts” the claims in factoring, which can justify recording a transaction between the factor and the debtor because there is a genuine interaction between the two.
  - Following this view, the change in the factor’s position against the debtor would be recorded in the financial accounts (on a whom-to-whom basis) rather than as other changes in volume, limiting occurrences of other changes in volumes and aligning with the debtor/creditor principle for tradable instruments.
- An alternative view holds that the supplier factoring invoices does not imply the debtor engaged in a new loan agreement with the factor; international accounts should consider all parties and not simply “look through” to apply a debtor-creditor approach.

### Treatment of the implicit financing element and the discount
- Because the supplier does not request immediate payment from the debtor, the invoice price implicitly includes a financing element.
  - 2008 SNA paragraph 3.144 takes the convention of not recognizing this financing element unless the trade credit is long term, based on the notion that it can be neglected.
  - Suppliers, however, seek immediate payment through factoring, so the financing element manifests upon factoring as a “discount”, part of which reflects the reduced present value of the trade credit at inception.
- Important question: classification in national accounts of the discount entailed in factoring.
  - Any explicit fee or interest should be recorded and classified based on general principles of economic statistics.
  - Any implicit fees or interest should also be recorded as such even when they do not present themselves explicitly.

### Fee versus interest: conceptual and practical arguments
- The discount itself should be classified as fee/interest; interest may look appropriate for the factor per IFRS recommendations, but suppliers do not classify it as interest.
- Conceptually the discount consists of both fees and interest; if the fee portion cannot be identified separately, one category must be chosen.
  - To assist the choice, consider the relative share of fee versus interest likely included in the discount: because FISIM automatically reclassifies any interest earned above interbank rate as financial services, it is likely that the fee component is predominant within the discount.
- Counterarguments against treating the discount as interest:
  - The supplier lacks a corresponding liability to the factor, which would preclude recording an interest flow from supplier to factor and instead require the interest flow to be recorded between the debtor and the factor.
  - FISIM considerations: whether income recognized as interest earned on loans should be included in FISIM calculations. If so, distribution of FISIM should be on the sector of the debtor rather than that of the supplier.
- Argument in favor of fee treatment:
  - The seller will likely recognize the discount actually paid as sale-loss rather than interest in his accounting.
  - Interest accruing on factoring claims is accrued using the effective rate, which includes all future flows related to the asset without differentiating fee versus interest.

### Timing, accounting asymmetries, and statistical adjustments
- Supplier recognizes the whole discount as expense upon factoring, while the factor accrues interest over the life of the instrument.
  - Recognizing the discount as income upon factoring, in one period at once, may resolve inconsistency between supplier and factor accounting and would benefit cross-country consistency of stock data.
  - Spreading income over the life of the instrument is difficult because the supplier has no financial instrument entry to balance a corresponding entry in the nonfinancial accounts.
- Statistical techniques should be applied to correct timing of recording and to adjust the discount as fee or interest in factors’ and suppliers’ accounts respectively.
  - Some correction should reclassify the income of the factor from interest to fee (if fee option preferred) or from fee to interest (if interest option preferred).

### Classification in BPM6/2008 SNA and opposing views
- BPM6 paragraph 5.72 explicitly requires recording factored claims as Other accounts payable/receivable after reclassification from trade credits. From the debtor’s perspective, this is only a change in counterpart.
  - Argument for classifying as other receivable: the factor does not provide funds directly to the debtor, while the claim itself is against the debtor; the transferred claim is a trade credit, not a loan.
- Counterarguments:
  - Some argue factored claims cannot be classified in the 2008 SNA as other receivables (AF.89) because that category would, according to them, only contain timing differences between SNA transactions and their payments.
  - This restriction is reflected in the ESA 2010 definition of AF.89, whereas the 2008 SNA lacks a formal definition of the category; 2008 SNA paragraph 11.127 second sentence is cited as seeming to support the restriction (“this category ... covers amounts related to taxes, dividends, purchases and sales of securities, rent, wages and salaries, and social contributions”).
- The argument that the factor’s lack of direct funding to the debtor precludes classification as a loan is not wholly convincing because similar situations arise in financial leasing (lessee receives no cash) and other cases where payments on loans are contracted for the benefit of a third party.

### FISIM calculation and implications (footnote summary)
- FISIM calculation requires comparing the interest flow before FISIM and a “true” interest flow calculated using the claim value times a reference rate; the difference is considered output.
  - Because there is no claim between the factor and the supplier, any interest recognized between those two sectors would automatically be retreated as production of service.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/f14-treatment-of-factoring-transactions-final.pdf_