Clarifications concerning the outstanding nominal amount and the accrued interest in the case of trade receivables

Question

We have some questions concerning the reporting of the outstanding nominal amount and the accrued interest in the case of trade receivables. In particular, Example 18 in Part III of the Manual is said to relate to factoring without recourse, but the treatment of accrued interest seems to be in line with factoring with recourse. Furthermore, the outstanding nominal amount is based on the nominal value of the trade receivable (and not the funds advanced to the factoring client) which is line with non-recourse factoring. Next, while it is stated in Section 5.4.7 that the (implicit) accrued interest should be deducted from the funds advanced to the factoring client, in Case 11.1 in the examples of complete reports there is no such deduction. Finally, it is stated in Section 5.4.9 that the commitment amount at inception is the sum of the price for purchasing the trade receivables and the off-balance-sheet amount. Shouldn’t the commitment amount at inception concerning Case 11.1 in the example therefore be €248,000? Could you please clarify the reporting?

Answer

Indeed, while Example 18 in Part III of the AnaCredit Reporting Manual (the Manual) aims to illustrate how accrued interest is reported to AnaCredit in the case of trade receivables, rather than referring to trade receivables with recourse, it inaccurately refers to factoring without recourse where by convention no accrued interest is reported at all (see Section 5.4.11, where it is stated that the interest rate is non-applicable in the case of non-recourse trade receivables). Consequently, the example has been revised (see below) and the following points have been considered in particular:

  • the data attribute “accrued interest” is non-applicable in the case of non-recourse trade receivables (see Section 5.4.12 in Part III);
  • in the case of trade receivables with recourse where the exposure is to the factoring client, the accrued interest is reported in accordance with Annex IV to the AnaCredit Regulation.

Furthermore, as regards the reporting of accrued interest in the case of trade receivables with recourse, please note that:

  • it is reported as if it was accrued on a straight-line basis, i.e. at a constant interest rate over the period between the settlement and maturity dates;
  • unless capitalised earlier, the accrued interest is considered realised at the maturity of the instrument and is added to the outstanding nominal value (if it is not paid);
  • if interest is payable periodically (e.g. monthly), the interest accrual starts anew in the subsequent period; the interest is added to the outstanding nominal amount if it is not paid when it is due;
  • the interest accrual is on the funds advanced to the client rather than the notional amount of the invoices concerned.

It should also be clarified that the reference to accrued interest on page 62 (lines 13-20), where it is stated that at a reporting date the outstanding nominal amount of the instrument is the amount of the funds advanced (i.e. the nominal value of the invoices reduced by the reserve withheld) to the factoring client [...] reduced over time by deducting any repayments collected from account debtors liable for the trade receivables, and also reduced by any (implicit) accrued interest and written-off amounts (if any), aims to reiterate that, until capitalised, accrued interest and write‑offs are not included in the outstanding nominal amount (which is a general rule applicable to all instruments and is not specific to factoring; see the definition of outstanding nominal amount in the AnaCredit Regulation). In other words, the sentence in question should read “the outstanding nominal amount of the instrument does not include any accrued interest and written-off amounts”.

Finally, as regards the commitment amount at inception relating to Case 11.1 in the examples of complete reports, indeed the commitment amount should, in accordance with the provisions in Section 5.4.9, be €248,000, which is the price for purchasing the trade receivables, as in this case there is no off-balance-sheet amount (i.e. cell S2 in the “CASE 11 (1)” tab changes from €250,000 to €248,000).

Revised Example 18

: Outstanding nominal amount and interest accrual

A factoring agreement is made between the factor and the factoring clients. The relevant agreement terms are:

  • trade receivables are purchased under factoring with recourse;
  • the face value of the trade receivables is €125,000 €100,000;
  • the advance rate is 80% of the face value, resulting in the funds advanced of €100,000;
  • the interest rate charged on advances is 15% per annum, yielding €3,750 €3,000 at maturity (=€100,000*15%*3months/12 months);
  • the trade receivables are issued on 1 May 2019 and are due on 1 August 2019;
  • the trade receivables are collected on 1 August 2019.

Assuming that the instrument is reported for three consecutive reporting reference dates, the outstanding nominal amount and the accrued interest are reported as follows:

Table 39Indication of the financial dataset

Reporting reference date

Contract
identifier

Instrument identifier

Outstanding nominal amount

Accrued interest

31/05/2019

FA#1

TRREC#1

100,000.00 97,000.00

1,250.00 1,000.00

30/06/2019

FA#1

TRREC#1

100,000.00 99,000.00

2,500.00 0.00

31/07/2019

FA#1

TRREC#1

100,000.00 99,000.00

3,750.00 1,000.00

Given that over the entire tenor of the instrument the interest charge amounts to €3,750 €3,000 and that the interest is accrued on a straight-line basis, the following holds.

  • After the first month (i.e. as of 31 May 2019), the outstanding nominal amount of €100,000 €97,000 is reported and the accrued interest amounts to 1/3 of €3,750 €3,000, i.e. €1,250.
  • By the end of the second month (i.e. by 30 June 2019), an additional 1/3 of the total interest charge is accrued, i.e. €1,250, yielding accrued interest of €2,500.
  • At the end of the third month, the remaining part of the interest charge has been accrued and therefore €3,750 €1,000 is reported as the accrued interest.

Finally, on the maturity date of 1 August, the total interest charge is now part of the outstanding nominal amount, which is also paid off in full.

Related questions

See also Clarifications regarding revolving trade receivables

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