Receivables Recourse

“what do they mean by factored trade receivables sold with recourse ?”

Which bit do you not understand … “factored” or “with recourse”

To factor your receivables is to sell them to an agency that will collect the money. The agency will pay you a discounted amount when they buy those debts from you so the agency makes its money by paying you, say, $90 and you sell to the agency receivables of, say, $100

But what if the debt goes bad?

That’s where the ‘recourse’ bit comes in

The agency will transfer that debt back to you and you will have to repay $100 to the agency

There is a way to avoid that potential obligation and that’s where the agency will buy the debt from you for, say, $85 but agrees to take the risk of non-payment by those receivables

That extra $5 is known as a ‘del credere’ commission

You ask:

“Also, the treatment of redeemable preference shares as equity does this appear as equity in SOPF ?”

Strictly, the answer is “No” Redeemable Preference Shares are shown under Liabilities – if they are redeemable within 12 months, then they appear in Current Liabilities

If the redemption date is more than 12 months hence, they will appear in Long Term Liabilities

IRREDEEMABLE Debentures will appear in the Equity Section

But even they do not appear in SOPF!

They DO appear of SOFP

OK?