How to Record Invoice Factoring in QuickBooks

TL;DR: To record invoice factoring in QuickBooks, do not book the factor's advance as income. You already recognized the revenue when you invoiced the customer, so booking the advance as a sale counts it twice. Set up a "Due from Factor" other current asset account for the reserve the factor holds back, a factoring fee expense account for the discount, and (for recourse deals) understand you still carry the risk if the customer never pays. The advance moves the receivable off your books, the fee lands in expense, and the reserve release brings the rest of the cash in later.

Last updated July 2026.

What invoice factoring actually is

You sell (or assign) an unpaid customer invoice to a factoring company. The factor advances most of the face value right away, holds a slice back as a reserve, and then releases that reserve minus its fee once your customer pays the invoice. Staffing agencies, trucking carriers, cleaning crews, and construction subs lean on this because payroll is due in seven days and the customer pays in sixty.

Here is the part that trips people up: in most structures, factoring is not a loan against the invoice. It is a sale of the receivable. That distinction drives the entire bookkeeping. You are not borrowing money that shows up as a liability; you are converting an asset (the receivable) into cash plus a smaller asset (the reserve owed to you).

Two flavors exist. With notification factoring, your customer is told to pay the factor directly, usually through a notice of assignment. With non-notification factoring, the customer keeps paying you and you forward the funds. Notification is far more common in trucking and staffing, and before the first invoice is funded you will sign the factoring agreement and the notice of assignment, which tells your customer where to send payment.

Recourse vs non-recourse factoring

With recourse factoring, if the customer never pays, you have to buy the invoice back or swap in a good one. You keep the credit risk, and a recourse obligation hangs over the deal until the invoice clears. Most factoring in the US is recourse.

With non-recourse factoring, the factor absorbs the credit loss on approved accounts, but usually only for defined credit events such as the customer's bankruptcy or insolvency. It rarely means "no risk at all." If the invoice is disputed because the load was late or the shift never happened, that is not a credit event, and you are back on the hook. The agreement's definitions control what is actually covered, so read them.

Whether the transfer counts as a true sale or has to be treated as a secured borrowing depends on the terms of your agreement and on the accounting standard your books follow. If you keep your books on accrual GAAP, ask your CPA which treatment applies before you set up the accounts. Cash-basis shops usually record the sale approach shown below, but confirm sale versus secured-borrowing treatment with your CPA either way.

The accounts to set up in QuickBooks

Add these to your chart of accounts before you touch the first transaction:

• Due from Factor (Other Current Asset): the reserve the factor is holding for you.
• Factoring Fee Expense (Expense): the factor's discount or fee. Some agreements price it as a flat discount off face value; some charge a fee that accrues with days outstanding, so a slow-paying customer costs you more.
• Factoring Clearing account (a bank-type or Other Current Asset account, optional but useful): route each invoice through this so every factored invoice can be traced individually.
• Recourse Liability (Other Current Liability): only if your CPA wants the recourse obligation recorded.

The fee belongs in expense, not netted against revenue. Netting the fee against sales hides the true cost of financing, understates both your revenue and your expense, and makes gross margin look better than it really is. If financing is eating three cents on every dollar of sales, you want that sitting in an expense account where you can see it, not buried inside a smaller revenue number. Our guide to recording bank fees in QuickBooks follows the same logic for wire and ACH charges.

Step by step: the three entries

Work through one invoice. The terms below (an 85% advance, a 15% reserve, and a 3% factoring fee on a $100,000 invoice) are an illustrative example to make the arithmetic clean, not a quoted rate. Your agreement will differ.

Entry 1: the invoice is sold. The factor wires $85,000 to your checking account. Record the $85,000 into checking, move the full $100,000 receivable off the customer's AR, and set up $15,000 in Due from Factor. In debits and credits: debit Checking $85,000, debit Due from Factor $15,000, credit Accounts Receivable $100,000. The receivable is gone; you now hold cash plus a claim on the factor.

Entry 2: the customer pays the factor. Nothing hits your bank. The factor now holds your customer's $100,000. There is no entry on your books yet.

Entry 3: the reserve is released. The factor sends you $12,000 and keeps its $3,000 fee. Cash goes up $12,000, Factoring Fee Expense goes up $3,000, and Due from Factor drops to zero. The arithmetic: $15,000 reserve minus the $3,000 fee equals the $12,000 released. In debits and credits: debit Checking $12,000, debit Factoring Fee Expense $3,000, credit Due from Factor $15,000.

Check the totals. Cash received is $85,000 plus $12,000, which is $97,000. That equals the $100,000 invoice less the $3,000 fee. Every number reconciles, and Due from Factor is back to zero once the invoice is fully settled.

In practice you have two ways to enter this in QuickBooks. You can Receive Payment against the original invoice deposited to the factoring clearing account, then record a bank deposit for the advance and a journal entry for the reserve and fee. Or you can skip the clearing step and post a single journal entry. Both are fine as long as the ending balances match. If you route the advance through a deposit, our note on recording a deposit in QuickBooks covers the mechanics.

Where each bank line goes

The mistake almost everyone makes

They book the factor's advance as sales income. It feels like income because cash landed in the bank, but you already recorded the sale when you invoiced the customer. Count it again at the advance and revenue is doubled. The customer's AR never clears because no payment was ever applied to it. Your balance sheet will not reconcile, and your sales tax or income tax figure ends up overstated because the top line is wrong. Every factored invoice compounds the error.

The second mistake is quieter: recording only the net $97,000 that actually reached the bank and never showing the $3,000 cost of financing. Now your revenue is understated and you have no line item telling you what factoring costs. Come budget season you cannot tell whether the financing is still worth it.

Reconciling a factored month against the bank statement

Factoring scatters your money across many small transactions: an advance here, a reserve release there, a fee, a wire charge, an occasional chargeback. The bank statement is the one place all of those pieces show up together with real dates and amounts. That makes it the backbone of your month-end reconciliation.

Converting the PDF statement to a .qbo file and importing it is the fastest way to get every one of those lines into QuickBooks. You match the advances, tag the reserve releases, and code the fees in one pass instead of keying them by hand. A manual .qbo import also reaches back further than a live bank feed, which usually stops around 90 days, so you can rebuild several months of factoring history at once. Run statements through the PDF to QBO converter, and if you close multiple accounts each month, the bulk bank statement tool handles them together. Once the file is ready, follow the steps to import a bank statement into QuickBooks Online.

We build workflow pages for the industries that factor most: staffing agencies, trucking carriers, and cleaning and janitorial companies. Bookkeepers running several factored clients can start from the accountant workflow or the homepage.

Frequently asked questions

Is invoice factoring a loan?

In most structures, no. Factoring is a sale of your receivable, not a loan against it, so the cash does not show up as debt on your balance sheet. Some agreements are structured as secured borrowing instead, which does create a liability. The terms decide, so ask your CPA which treatment your agreement calls for.

Is factoring income taxable?

The advance itself is not new income. You already recognized the revenue when you invoiced your customer, so factoring only changes the timing of the cash, not the amount of taxable sales. The factoring fee is a deductible business expense. Booking the advance as extra income would overstate your taxable revenue.

How do I record a factoring fee in QuickBooks?

Post the fee to a dedicated Factoring Fee Expense account, not netted against sales. When the reserve is released, debit checking for the cash you receive, debit Factoring Fee Expense for the fee, and credit Due from Factor for the full reserve. That keeps the true cost of financing visible on your profit and loss.

What is a factoring reserve?

The reserve is the portion of the invoice the factor holds back instead of advancing up front. On an 85% advance, the 15% reserve stays with the factor until your customer pays. You record it as a Due from Factor asset. When the invoice settles, the factor releases the reserve minus its fee.

What happens if my customer does not pay the factor?

With recourse factoring, you buy the invoice back or replace it, and the factor charges the advance back to your account. Reverse the original entry: move the amount back into Accounts Receivable (or a recourse liability) and reduce cash. With non-recourse factoring, the factor absorbs the loss, but usually only for defined credit events, not disputes.

Does QuickBooks have a factoring feature?

No. QuickBooks Online and Desktop have no built-in factoring module, so you record it with standard accounts and journal entries: Due from Factor, Factoring Fee Expense, and an optional clearing account. Some third-party apps sync with certain factors, but the underlying bookkeeping is the same manual setup described above.