Accoutnting for sale of future receivables

My client runs a restaurant and recently sold their future receipts for cash flow needs and I need help understanding how to book this. $217,573.98 of receipts sold for $168,662 and will be repaid with a daily payment of $601. Client received the full $168k. What are the entries for this?

Seems like:
Dr
Cash $168,662
Loss on sale 48,912

Cr
Payable $217,573.98

Then each repayment of $601 simply reduces the payable. Or does each repayment need to be apportioned between the payable account and a contra asset account or interest/fee expense? Seems a little different from factoring.

I think the journal entry is going to depend on the exact nature of what is meant by "sold their future receipts" but my gut is that the loan is credited at $168,662 and that interest would be amortized like a discounted note.

As an aside, I've seen loan sharks with better interest rates than this, even when you include the cost of kneecap repair surgery. Is there any hope for this restaurant?

The agreement specifically states it's not a loan and that they sold their future receipts. There is no interest rate specified, although could calculate what the implied rate is. Yes, the owner really should have considered this before signing because it's pretty ridiculous. It's a relatively new client who fired their bookkeeper almost a year ago, never replaced, and has been without financial statement visibility for this entire time. So I am trying to do a full years accounting while discovering this type of issue. I think the restaurant is OK but there appears to be mismanagement. But this type of "loan" is killing them. They actually have four of them, all written the same way: "Future receivables sold".

They are on the hook for the full repayment amount of $217k (or the principal left) if they default. So it's not interest per se, but something else.

The red flags being waved here are so large here that I'm surprised a bull hasn't charged at you yet. The restaurant is not just borrowing from its future at a usurious rate, as I originally thought, but it has now drunk from this well for the 4th time? Seriously -- how exactly does this restaurant get out of this debt, especially now that they're another $49k behind?

The way that you describe it, as it's not specifically a loan, then I'd say that your journal entry seems theoretically appropriate as a quasi-factoring agreement. There must be more to the story, though. Is this bona fide business financing or is it really is personal financing of the owner done through a business?

BFStax, has the company providing the money become the provider of a merchant account for credit card purposes? I have a client who has done something similar, repeatedly over the years with a couple of different entities and each time that company has become the company processing credit card payments, so they are actually getting interest and the merchant discount rate, and they are able to pay themselves from the credit card transactions before depositing whats leftover into the client's checking account. It's usually a very high rate and I've discouraged them from doing it a number of times, but times would get tough especially following the economic downturn of 2008 and then a serious accident involving their dive boat which was completely destroyed. It was the only place they could get the kind of funding they needed. I booked it as: debit cash, debit prepaid interest, credit loan payable. Because no matter what they want to call it, it's still a loan that needs to be paid back. They were always provided monthly statements that I was able to reconcile to.

BFStax, has the company providing the money become the provider of a merchant account for credit card purposes?

No. The funding was provided to client in full, and then on a daily basis they debit the bank account for the specified amount. All four act the same way. Honestly, it's crazy and I don't really know yet how they can get out of this. I believe they are looking to consolidate all four into a traditional loan at a more reasonable rate and over longer terms but without financials this is where they are, which is probably why they had to use this type of loan because no one else would give any money.

In total across the four loans they are probably $150k-$200k behind (going off memory right now) so this will be interesting for sure. But for now, I'm thinking prepaid interest might be the best terminology.

We ran into the same issue on a client and couldn't find any clear guidance. In our case, the buyer assumed the risk. If the company couldn't pay there was no recourse for the buyer.

We carry the loss/interest on the balance sheet and deduct it as payments are made. Disallowing 100% of the interest (no risk) seemed too conservative, and deducting 100% in the current year seemed too aggressive (no basis). So each year the actual payments made are allocated between an interest deduction and principal payment of the loan.

The whole thing ends up being moot. The company has huge losses and the owners have no basis to deduct the losses. They advanced cash a number of different ways than distributed it to themselves beyond their basis.

As an aside, I've seen loan sharks with better interest rates than this, even when you include the cost of kneecap repair surgery.

What's 55% between friends?