Understanding CECL: Practical Reserve Strategies for Factoring Companies

In this episode of Sounding Board, factoring specialists Claudia Montalbano of Verity Accounting Solutions and Becky Gibbs of Boyum Barenscheer break down the evolution from the traditional “bad debt reserve” to the Current Expected Credit Loss (CECL) model and what it means in practice for factoring companies.

They explore both the technical accounting requirements and real-world applications of CECL, including how factors can assess receivable risk using aging buckets, industry concentration, portfolio composition, and economic conditions. The discussion highlights practical approaches for smaller and mid-sized factoring companies, balancing compliance with operational efficiency.

Claudia and Becky also compare management and auditor perspectives, discuss the role of consistency and subsequent collections, and address why operational controls and fraud risk matter when estimating credit losses. The episode offers practical guidance for applying CECL in a way that supports informed decision-making while meeting accounting standards.