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We prepare most type of tax returns:

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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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When my business partner and I found ourselves in a land investment that was abandoned by the developers, we had no reasonable economic choice but to walk away from our mortgage loan.  While we understood that there would likely be tax consequences, the magnitude of our exposure was not fully anticipated.  Thankfully, Mr. Bode was able to work with us to strategize a defensible tax position and mitigate the tax implications of our investment loan abandonment.  I would recommend that anyone facing an investment loss that has tax implications due to debt forgiveness give Gary a call.  It is always best to fully understand the circumstances and the tax rules and related options before paying a hefty bill.  Thanks Gary!

Brian D. - CPA

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S Corporation CPA explains Accounts Receivable Factoring and Receivables Assignment| Form 1120-S

S Corporation CPA Wilmington NC discusses Factoring

Gary Bode, CPA: S Corporations CPAs often help with financing. But Factoring is seldom a first choice. For a free phone consult, please call (910) 399-2705.

Accounts Receivable Factoring is a slippery form of asset based financing. In chess, this would be an end play move. Consult your S Corporation CPA as each case is unique.

Asset based financing differs from a traditional loan. Here the value and quality of your S corporation’s assets, as collateral, outweigh your credit rating. In this case the asset is your company’s Accounts Receivables (A/R). Factoring is the purest form of asset based financing, and the most problematic. Again, consult your S corporation CPA. Hopefully there’s a better solution to your cash flow problem.

Other examples of asset based lending are Purchase Order financing and Revolver lines of credit. These techniques use a blend of your credit history, track record and value/quality of your assets.

Factoring:

  • Is a financing technique where your S Corporation sells its accounts receivable to a third party called the Factor.
  • I isn’t a loan. You’re selling A/R, there’s no future cash flow on those sold accounts.
  • The Factor analyzes your accounts receivables for expected value. Aging is one component examined.
  • The Factor buys your accounts receivable (A/R) at a discount. Perhaps 80%.
  • Your customers may not know there’s a Factor involved. But usually there’s a lockbox; the customers send payments directly to an account controlled by the Factor.
  • There are usually administration fees on top of the Discount.
  • Usually, you get the cash now.
  • Sometimes you get the cash as the A/R is paid.

“The S Corporation is still responsible for un-collectable debt in Factoring. The deck is stacked against you.”
– Gary Bode, S Corporation CPA

If your business can be turned around with a capital infusion, Factoring is seldom the best financing solution. But if you’re going under, maybe it’s a better deal. Be dubious of the advantages touted by Factors even though they’re true.

Invoice Discounting aka Receivables Assignment

Sometimes a true loan or line of credit is granted against a pledge on your S Corporation’s accounts receivable. This is more likely if your customers have strong reputations, like say GE for example, instead of Joe down the street.

I hope you never need Factoring. Better to consult with an S Corporation CPA for help navigating through a financial crisis. If you don’t have a local S Corporation, consider calling us at (910) 399-2705 for a free phone consult. We are a CPA firm that operates as an S Corporation ourselves. So we stay tight on all S Corporation issues and of course Form 1120-S.

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