Factoring Companies Guidebook

Sales or Return (SOR) is a sale made where the Client guarantees to take back any goods that the customer does not sell. Effectively there is no outright sale, so the debt does not exist. This guarantee can be in writing, on the customer order, sales catalogue, other contract, verbal or simply industry practice.

Sale or Exchange (SOE) is similar except that rather than have the right to return goods for credit, it has the right to exchange unwanted goods for new ones.

Concerns

SOR/SOE invoices are not enforceable as customers have the right to return or exchange some or all of the goods at any time, or within a stipulated period, or if certain other conditions are met. They would then be entitled to a Credit or Refund or new goods. Although this may not cause us a problem in a live situation, it could seriously affect our collectability in a 'gone situation'.

Identification

Review orders, invoices, catalogues, terms and conditions and credit notes.

Formal SOR is common in:-

Toy, Greeting Cards, Music Industries and most other industries where products are sold through catalogues.

Informal SOR is common in:-

• Motor Factors, Computer Hardware etc.

The basic documentation review should consider standard returns for faulty and unsold goods after a particular time period has elapsed. The latter of which could encompass returns for unsold goods at the end of a particular catalogue's life, as the customer may decide not to include those goods in the next catalogue. SOR/SOE may prevail where other conditions of the order are not met, such as the provision of marketing support by the Client to boost sales.

Treatment

SOR/SOE invoices should always be reserved in full. Where it exists on selected debtors, these should be excluded from the facility. SOR/SOE can be identified through credit notes, debit notes and remittance advices.

Review the Clients and customers terms and conditions of sale and purchase.