Factoring Charges

This Overheads code records the cost of factoring charges incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Recruitment and staffing

A recruitment or staffing agency sells its unpaid client invoices to a factoring company for immediate cash, because temporary workers have to be paid weekly regardless of how slowly the end client settles the invoice. The factor's charges typically combine a discount fee (a percentage of the invoice value) and sometimes a separate service fee. A month's factoring charges of £340 is a debit of £340 to 7908 (Factoring Charges) and a credit of £340 to 1200 (Bank Current Account) or the factoring account, usually with no VAT since factoring is generally treated as an exempt supply of credit — though it's worth confirming the exact treatment against the factoring agreement, as fee structures vary.

Construction subcontractor

A construction subcontractor factors invoices to bridge cash flow gaps caused by CIS deductions and retentions delaying full payment. Many construction firms use invoice discounting rather than full factoring — a confidential arrangement where the business keeps managing its own credit control, rather than handing that over to the finance company — but the accounting entry is the same either way. A month's charges of £275 is a debit of £275 to 7908 and a credit of £275 to the relevant bank or finance account.

Commonly confused with

Because code 7907 (Other Interest Charges) sits right next to this one in Overheads, it's a common mis-posting target. Code 7908 is specifically for factoring charges, while 7907 covers other interest charges — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Factoring Charges won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads