Sounding Board: CECL and Bad Debt Reserves – What Factoring Companies Need to Know for Year-End

As year-end approaches, many factoring companies are reassessing their bad debt reserves under the Current Expected Credit Loss (CECL) model. In this conversation, Boyum Barenscheer Partner Becky Gibbs and Claudia Montalbano discuss how CECL applies specifically within the factoring industry and what the newest guidance means in practice.

CECL originally required a deeper, forward-looking analysis, considering aging buckets, economic trends, fraud risk, and industry volatility. Recently, a new practical expedient allows eligible companies to simplify their reserve calculation by using a single percentage, historical write-off rates, or year-end collection data.

Becky shares what auditors look for, while Claudia explains how factors can evaluate concentrations, higher-risk clients, and today’s slower-paying environment. The takeaway: whether using a simplified method or a more detailed analysis, factors should choose an approach that truly reflects expected losses in their portfolios.

Watch the full conversation below.