A Credit Customers
Consumers with excellent credit, who can obtain a loan from traditional lenders.
A collection of claims or invoices against a particular customer for goods or services delivered.
The customer of a factor’s client. The compny owing the money due on the invoices. Also known as the customer.
The amount owed by a business to its suppliers or vendors.
Trade credits; an amount owed by an account debtor by the act of granting short term unsecured credit in lieu of cash for goods or services. A collection of a company’s outstanding invoices (invoices which have not yet been paid by the company’s customers). Considered a liquid asset on the balance sheet and generally expected to be paid in less than ninety days.
Accounts Receivable Aging Schedule
A classification process, as reported on a schedule by time intervals (30 day increments & current), 30 days, 60 days, 90 days, 90+ days, used to analyze the amount of money owed to a business by its customers. It is used by credit grantors (such as banks and factors) to determine the probability of collection, as it shows patterns of payment and delinquency.
Accounts Receivable Financing
A secured short-term loan that involves either the assignment or factoring of receivables.
Accounts Receivable Turnover
A measure used to determine a company’s average collection period for receivables; computed by dividing net credit sales by average accounts receivable.
A system of accounting in which revenues and expenses are recorded as they are earned and incurred, not necessarily when cash is received or paid.
Form sent to the client’s customer account debtors to confirm that the invoice the client is selling does exist and that they will remit payment directly to factor.
The percentage of an invoice’s face value which a factor pays upon its purchase.
Anything having commercial or exchange value that is owned by a business, institution or individual. A business’ assets might include its real estate, equipment inventory, intellectual assets such as copyrights or trademarks, and accounts receivable.
Asset Based Lending
A business loan where the borrower pledges as collateral for the loan any assets, such as invoices, purchase orders or equipment, used in the conduct of his or her business. Funds are used for business related expenses. All asset-based loans are secured.
The ability to assign (or sell) accounts receivable to another individual or business.
The person or business entity who is given, obtains, or buys the right to an asset.
The transfer of the rights, title or interest of any asset or debt instrument that is properly owned by another party.
The person giving or selling an asset, and subsequently, forfeiting rights to that asset.
An individual who is authorized to execute a binding document on behalf of a corporation, partnership or other legal entity.
B through D Credit Customers
These consumers have less than perfect to bad credit and usually cannot qualify for traditional financing. Also called sub-prime credit customers.
Bad Credit is a term used to describe someone who is considered a “high risk” to lenders and other finance companies such as factors.
Any debt that is delinquent and has been written off as uncollectible.
A financial statement that shows a business’ assets, liabilities and owner’s equity at certain point in time.
A state of insolvency of an individual or organization. The inability to pay debts.
Bill of Exchange
An instrument similar to a time or sight draft which the buyer signs. This is acknowledgement of debt for the goods he is buying.
Bill of Lading
A shipping document which gives instructions to the company transporting the goods.
Bill of Sale
A document used to transfer the title of certain goods from seller to buyer.
A legal transfer of ownership of all accounts receivable, both present and future as collateral for funding.
The degree of operation where costs equal revenue.
An individual who pairs clients in need of cash with appropriate financial entities including factors.
Broadly, all the money and other property of a corporation or other enterprise used in transacting its business.
The process of planning and managing a company’s long-term investments.
Capital Net Worth
The amount of funds remaining in a business after all debts have been satisfied; i.e. assets over liabilities.
The combination of debt and equity a company maintains.
The flow of cash through a business or household. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.
A Federal Bankruptcy Act where a debtor can maintain control of its business and operations, under court supervision, as long as current debts remain paid.
The individual or company that sells its accounts receivables to a factor or other financial entities.
Something of value (accounts receivable, purchase orders, equipment, other assets, etc.) that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender or factor until a loan is repaid or an invoice collected. If the borrower defaults, the lender has the right, by law, to seize the collateral.
Refers to the funding source’s ability to collect future income stream payments once they are purchased.
Commercial Credit Insurance
Insurance against large losses from the uncollectability of accounts receivable.
Commercial Finance is concerned with loans and other credit for business purposes, compared to personal loans which are for an individual.
The amount of one client’s accounts receivable due from a single customer. A large concentration for a single customer is considered high risk.
Confidential Invoice Discounting
An arrangement between a client and a factor in which the factoring relationship is not disclosed to the client’s customers.
An oral or written, often legally-binding, agreement between two parties.
A legal entity which can own property, incur debts, sue, and be sued. Corporations provide for limited liability, easy transfer of ownership and continuity of existence.
A privilege granted for the purpose of extending time to make payment on a debt.
An analysis of records and financial affairs to determine the creditworthiness of a business.
A record, prepared by an independent source, of an individual’s or company’s debts and status of their payment, useful to a lender in qualifying a potential borrower for a loan or for factoring. Also called a credit report.
Profile of an individual or company’s capacity to receive credit and honour the terms and conditions of commercial credit.
A report documenting the credit history and current status of a borrower’s credit standing.
The evaluation system used by lending institutions to determine relative credit riskiness of a business or consumer. When evaluating businesses, it generally considers factors such as credit payment history, new credit sought by owner of business, and financial strength and longevity of business.
One who is owed payments on a debt by a debtor.
Assets that will normally be turned into cash within a year.
The current ratio is a test of a company’s financial strength. It calculates how many dollars in assets are likely to be converted to cash within one year in order to pay debts that come due during the same year. The current ratio is calculated by dividing the total current assets by the total current liabilities.
The client’s customer. The company which pays the money due under the factored invoice. Also known as the account debtor.
DBA: Doing Business As
Used to designate the name of a business as it is commonly known rather than its legal name, the name of the owner, etc.
An abbreviation for “days beyond terms,” which indicates how many days past the due date an invoice is late.
One who owes something and makes payments to a creditor.
The omission or failure to perform or fulfill a legal duty, obligation, or promise (i.e. to pay a debt).
A document that proves delivery and invoicing of a shipment.
The amount of risk associated with collection of the accounts receivable. It can include returns, charge-backs, trade allowances, concentrations, slow pay, bad debt and other perceived risk.
Arrangement whereby a factor purchases an account(s) receivable from a business (your client) at a discount to the face value of that receivable. The factor earns a fee based on the number of days that the receivable remains unpaid, i.e., the longer the receivable remains unpaid, the larger the fee incurred.
The amount earned by a factor on each invoice purchased. It is based on the period of time the invoice remains outstanding (unpaid) and is set forth and agreed upon by both parties in the Discount Schedule.
The percentage of the face value of an invoice that a factor holds as its fee.
Background check and research conducted by the factor to assess validity of a prospective factoring client and that client’s customers. Due diligence may involve credit checks, appraisals, UCC searches, lien searches, or other communication with clients.
A lien or any form of indebtedness owed against real or personal property. An encumbrance is also recognized as unearned equity.
Face Amount or Face Value
The total dollar amount of an invoice. This is the amount that has to be paid to the factor by your client’s customer, without consideration as to how much was advanced to the client.
A company that purchases accounts receivable (invoices) or purchase orders from a client. The funding source for a client.
The selling of a company’s accounts receivable to a third party at a discount, in order to obtain funding.
Factors Acknowledgement Form
A form sent to the client’s customer by the factor, confirming that the client’s invoice does exist and that the customer will remit the payment due under that invoice to the factor.
The money the factor sends to the client up front, after the verification process is complete, and before the factor receives its money from the client’s customer. The advance is figured as a percentage of the face value of the factored invoices.
Factors Chain International
FCI is a global network of leading factoring companies, whose common aim is to facilitate international trade through factoring and related financial services.
An amount of money that is owed to the factor and is deducted or Charged-Back from the reserve or availability of the line due to an agreed upon non-payment by debtor clause in the Factors contract.
The business which sells its accounts receivable to the factor.
The fee the Factor Charges for factoring the clients accounts receivable.
A deposit maintained by the factor, to guard against disputes between the client and the customer, and to guard against bad debt losses due to customer non-payment. This is the money retained by the factor when the advance is sent to the client. The Reserve is sent to the client after the customer has paid the factor the money due on the invoice.
Factors Reserve Release
The amount of money released from the Factors Reserve once payment has been received and credited. The Reserve Release may be less any charge-back or fees associated with the services.
Accounts receivable funding, credit analysis, credit guarantees and collection management.
Process by which the factor verifies that the product or service provided by the client was received and accepted by the customer, and that the customer intends to pay the factor the money due under the invoice. This process takes place before the factor sends the advance to the client.
Advancing money (based on the advance rate) to a client.
An factor or an investment company that buys accounts receivable or liquid assets at a discount.
Generally Accepted Accounting Principles (GAAP)
Authoritative guidelines that establish and govern accounting procedures and practices at a particular time.
Generally Accepted Auditing Standards (GAAS)
Standards established by the AICPA that govern the procedures and practices of audits.
The liklihood that a company will have a continuing existence for the foreseeable future.
An intangible asset that exists when a business is valued at more than the fair market value of its net assets, usually due to strategic location, reputation, good customer relations, or similar factors; equal to the excess of the purchase price over the fair market value of the net assets purchased.
Sales that allow the return of merchandise purchased at the customer’s discretion.
A form of moving collateral or any negotiable instrument from a position of priority lien to a lesser position for the purpose of securing additional financing.
A financial statement that shows a historical record of a business’ income and expenses. Also referred to as a Profit and Loss Statement.
A promise to compensate for loss or damage sustained as a result of a stated set of circumstances.
Financial protection against loss, secured by the payment of a regularly scheduled premium.
Usually expressed as a percentage of the loan, interest is the amount charged by the lender to the customer for borrowing the money.
International Factoring Association
An international organization aimed at assisting the Factoring community by providing information, training, purchasing power and a resource for the Factoring community.
Money borrowed on the basis of finished inventory. The loan is paid as inventory is sold.
A secured short-term loan to purchase inventory.
A legal debt instrument which indicates the amount due from a customer to pay for delivered goods orservices. Invoices may be traded or sold.
A ruling handed down by a court of law ordering an individual or company to make good on an obligation.
The amount owed by a business or an individual, excluding ownership equity. There are two types of liabilities: Current and Long-term. Current are debts which must be paid within one year (such as accounts receivable, dividends, notes payable, bank loans payable, taxes payable, wages and long-term debt due within one year). Long term liabilities, also called funded debt, are debts that are not due until after a year’s time.
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
A search through public records on file in both the County Clerk’s and Secretary of State’s offices for any claims (pledges) against the property of a business (such as their accounts receivable) or an individual. An example would be if a taxing authority has a lien against the accounts receivable of a business due to taxes owed.
Limited Liability Company (LLC)
A legal entity or business organization which can own property, incur debts, sue, and be sued. Laws dealing with LLC’s vary from state-to-state but in general LLC’s provide limited liability to its members, allow centralized management, and can be taxed as a partnership.
Line of Credit
An amount of money, which a business or individual can borrow against at times it needs cash.
Cash, accounts receivable, or other assets that can be readily converted into cash.
The ability to convert assets into cash (or cash equivalent) without significant loss. If a business has good liquidity they will be able to meet their maturing obligations promptly, earn trade discounts, benefit from a good credit rating, etc.
Marginal Credit Customers
Consumers who may have had some slow pay problems, but generally pay their bills.
A lien on property (such as a building or an invoice) given by statute to a worker or contractor who performs work or furnishes materials for the improvement of that property, until compensation is made for the improvement. Until that lien is satisfied, it usually takes precedence over all other liens.
Negative Cash Flow
A situation where revenues are less than expenses. Prolonged negative cash flow can lead to the failure of a business.
Net Working Capital
The difference between a company’s current assets and current liabilities.
An aspect of confidential factoring where the customers are not notified of the client’s arrangement with the factor.
A type of factoring where the factor assumes complete responsibility for collection of debt. If the debt is not collected due to the financial inability of the customer, the factor assumes the loss.
A written promise to pay a named amount to a particular company or business by a certain date.
Process whereby the factor lets an account debtor (your client’s customer) know that an invoice(s) has been purchased from your client, and that the debtor is to pay the factor directly.
The cost of doing business unrelated to production or sale of goods or services. Office rent, for instance, is an overhead expense. It remains unchanged no matter how much a company sells.
A contract between two or more people in a joint business venture who agree to pool their funds and/or talents and share in the profits and losses of the enterprise. General partners are those who are responsible for the day-to-day management of activities, whose individual acts are binding on all the partners, and who are personally responsible for the partnership’s total liabilities. Limited partners are those who contribute only money and are not involved in management decisions and whose liability is limited to the amount of their investment.
Person or business that has the right to receive a payment or series of payments and is interested in selling that income stream for cash. (Also called the seller or client.)
The person, company, or government responsible for making payments on a debt obligation.
A contractual agreement in which a principal of a corporation assumes personal liability for the obligations of the corporation.
A legal debt instrument which indicates the amount due from a customer to pay for goods or services which have NOT yet been delivered. Generally, factors will not purchase pre-ship invoices.
The most favorable interest rate that banks charge, usually to their preferred customers. When factoring with recourse, the factoring fee is generally prime rate plus an additional 2 – 3 percent.
The owner of a privately held business, or one of the main parties (buyer or seller) involved in a transaction.
A major party to a transaction, acting as either a buyer or seller; or the owner of a privately held business.
First position; the senior lender in a transaction.
Profit and Loss Statement
A financial statement that shows a historical record of a business’ income and expenses. Also referred to as an Income Statement.
A document or form used by a customer to issue an order for goods or services.
Price reductions experienced as a result of purchasing in larger volume.
Quick Test Ratio
The Quick Test Ratio (also called the Acid Test or Liquidity Ratio) is the most excessive and difficult test of a company’s financial strength and liquidity. The quick test ratio is calculated by taking current assets less inventory (current assets minus inventory is often referred to as the “quick assets”), and dividing the result by the current liabilities.
Rate of Return
The yield on equity or invested capital.
The return of funds issued to the client by a factor from the reserve account.
A form of factoring where the client is liable for payment in the event the customer does not pay.
An account established by the factor to track funds owed to a client as factored invoices are paid. The account amount equals the invoice face value minus the advance, the factor’s fees, charge backs and administrative charges.
Revolving Credit Arrangement
Similar to a line of credit, this short-term financing is a prearranged bank loan that is generally open for two or more years.
Schedule of Accounts
Report give by the client to the factor. The report lists information about the account of each of the client’s customers.
The property pledged as collateral in a factoring transaction.
A form of doing business that is not a legal, taxable entity separate from the individual who owns the proprietorship.
Someone other than a stockholder or creditor who may have a claim on the cash flow of a company.
To assign one’s collateral position, whether in full or in part, to another to exchange one’s security interest over another.
A deduction from the list price of goods provided by a business in return for payment within a specified time frame.
The document filed with the Secretary of State and/or the County Clerk’s office(s) to perfect a factor’s lien on a clients’ assets (accounts receivable). Also called “UCC Financing Statement.”
The document that is filed with the Secretary of State and/or the County Clerk’s office(s) as evidence of an assignment, release or change in the UCC-1. In the case of factoring, a UCC-3 is filed to terminate a UCC- 1 when all outstanding invoices are paid and the relationship between the client and the factor is severed. Also called “UCC Statement With Respect To Change.”
Universal Commercial Code
Standardized set of guidelines protected by law that set down how business transactions must be conducted and regulates the transfer of property.
A step during the due diligence process in which a factor confirms the validity of an invoice with the customer.
An IRS form designed to help businesses collect information, such as business type, Federal Employer Identification Number (FEIN) and address, on their customers and clients for reporting purposes.
A factoring transaction where the factor bears all the risk of collection.
A company’s short-term assets and liabilities. Generally includes loans for business expenses such as, advertising, wages, rents, and other operational costs. Often these loans are secured by tangible assets or, in the case of long-standing good credit, by the “full faith and credit” of the company.
WSJ Prime Rate
The initials stand for the Wall Street Journal, which surveys large banks and publishes the consensus prime rate. It’s the most widely quoted measure of the prime rate, which is the rate at which banks will lend money to their most-favored customers. The prime rate will move up or down in lock step with changes by the Federal Reserve Board. For more, see prime rate.
The return on an investor’s capital investment presented as a ratio of income to the total cost over a specified period of time.