Knowledge base · Accounting & tax · 5 minuten · 31 Jul 2026
Factoring and your annual accounts: on or off balance sheet?
For a CFO or controller, factoring is also a balance sheet question. Do the receivables stay on your balance sheet, or come off it? That depends on who carries the risk, and it affects your balance sheet total and your solvency. This article covers the difference between on and off balance sheet factoring.
Why the treatment matters
For a controller or CFO, factoring is also a balance sheet question. The way factoring is treated in your annual accounts affects your balance sheet total, your solvency ratio and the way financiers and accountants look at your business.
The distinction turns on one key question: who carries the risk on the receivable? The answer decides whether factoring is treated on or off balance sheet.
On balance sheet treatment
With on balance sheet factoring the receivables stay on your balance sheet, and the funding received is recognised as a liability. In effect it is then a financing with your receivables as collateral.
This is generally the case when you continue to carry the risk of non-payment yourself. The receivable is not genuinely sold. It serves as security. Your balance sheet total stays the same in this situation, or grows.
Off balance sheet treatment
With off balance sheet factoring the receivables are actually sold and taken off the balance sheet. That is possible when the risk on the receivable passes to the factoring company, for instance with factoring plus credit insurance where the credit risk is transferred.
The effect: your balance sheet total falls, and your solvency ratio can improve, because the same amount of equity sits against a smaller balance sheet total. For businesses judged on ratios, that can be attractive.
It is not a free choice
Worth stressing: on or off balance sheet is not a switch you flip at will. The accounting treatment follows from the actual terms agreed, above all the question of whether the risk has genuinely been transferred. The applicable reporting standards decide how that must be treated.
This is therefore a subject to discuss with your accountant or controller, on the basis of the actual factoring agreement. A general explanation such as this article does not replace that assessment.
What SOOF Finance does here
SOOF Finance works with traditional factoring and explains per situation how the treatment works out, so that you can assess it together with your accountant. The precise treatment depends on the transfer of risk agreed and on your reporting framework.
We do not present an accounting outcome as settled before it has been agreed with your own adviser. That is part of a careful approach, certainly with financings of this size.
What it comes down to
Whether factoring is treated on or off balance sheet depends on who carries the risk on the receivable. Off balance sheet can reduce your balance sheet total and improve your solvency. It remains not a free choice: the treatment follows from the actual terms and the reporting standards. So always agree this with your accountant. If you are an accountant yourself, see For accountants.
About the author
Jaap van Aalst
Commercieel directeur, SOOF Finance
Jaap van Aalst started his first business almost thirty years ago, in staffing and secondment. That is where he saw for himself how many opportunities are lost when money sits too long in unpaid invoices.
Around eighteen years ago he moved into the factoring world, as commercial director. Since then he has sat across the table from countless business owners and seen at first hand what financing questions look like in practice. He looks further than the balance sheet: what the business does, where the opportunities are, and which form of finance genuinely moves it forward.
That is also the basis of his work at SOOF Finance. His starting point is simple: finance is not an end in itself, but a means by which a good entrepreneur delivers on their plans.
Frequently asked questions
No. It does not change your equity. With off balance sheet treatment your balance sheet gets shorter, which makes the ratios look different. More on this in improving solvency.
No. That follows from the transfer of risk in the structure. Your accountant assesses how it is treated.
Because your balance sheet counts with banks, insurers and in a sale. The same financing can look different on paper.
Further reading: the biggest pitfalls in factoring
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