Financing & treasury
Intercompany factoring
Intercompany factoring occurs when one group entity, often a treasury or finance centre, purchases another entity's trade receivables at a discount, providing immediate liquidity to the selling entity in exchange for assuming collection risk and the time value of money until the receivables are eventually collected from.
Pricing the arrangement requires assessing whether the factor genuinely assumes credit risk, meaning it bears losses if customers default, known as non-recourse factoring, or whether the seller retains that risk under recourse factoring, since the discount rate and overall economics differ materially between these two very.
The discount rate applied should reflect comparable third-party factoring costs, factoring in the receivables' credit quality, average collection period, and whether risk transfer is genuine, with tax authorities scrutinising arrangements where the factor bears little real risk yet earns a discount inconsistent with a routine.
In practice
What matters when applying intercompany factoring
- Determine whether factoring is recourse or non-recourse
- Assess whether credit risk transfer is genuine or nominal
- Benchmark the discount rate against comparable market factoring
- Factor in receivables quality and collection period
- Document the functional and risk profile of the factor
Frequently asked
Common questions
What is the key pricing question in intercompany factoring?+
Whether the factor genuinely assumes credit risk on the purchased receivables, since non-recourse factoring where risk truly transfers commands a materially different discount rate than recourse factoring.
How is the discount rate benchmarked?+
Against comparable third-party factoring arrangements, considering the receivables' credit quality, expected collection period, and whether genuine risk transfer supports the discount level applied.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.