Learn the lingo.
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– A –
Accounts Payable: The amount a company owes for goods and services it has received, but for which it has not yet paid.
Accounts Payable Aging: A report showing how long invoices due to vendors have been outstanding.
Accounts Receivable: The amount owed by a customer or account debtor to your company for goods or services already rendered and invoiced.
Accounts Receivable Aging Report: A report showing how long invoices from each customer have been outstanding.
Accounts Receivable Financing: The sale of a company’s accounts receivable invoices to a factor to obtain working capital. (See “factoring.”)
ACH: A system of the US Federal Reserve Bank that provides electronic funds transfer (EFT)
Advance: The money the factor sends to the client after invoice verification is complete. The advance is calculated by multiplying the advance rate by the face value of the factored invoice.
Articles of Incorporation: A document filed by a new company with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation. These two documents then become the Charter of Incorporation.
Articles of Organization: A document similar to the Articles of Incorporation, outlining the initial statements required to form an LLC at the State level for a Limited Liability Company.
Asset Based Lending: A form of business lending and type of loans where the borrower pledges collateral, such as account receivable, equipment and inventory, to a lender as additional repayment security against monies advanced.
Assignment of Claims Act: The law outlining the process and requirements for assigning the invoices and payments under a federal government contract to a financing institution.
– B –
Balance Sheet: A balance sheet is a statement from a business which details the balance of income and expenditure over the preceding period.
Bill of Lading (BOL): A shipping document that gives instructions to the company transporting
Blanket Assignment: Legal transfer of ownership of all accounts receivable, both present and future, as collateral for funding.
Borrower: The party to whom a Lender makes a loan.
– C –
Carrier: Party that transports goods.
Cash Flow: The flow of cash through a business.
Client: The business that sells its accounts receivable to the commercial receivables factoring company; also known as the account creditor.
Collateral: Anything of value (accounts receivable , inventory, machinery, equipment, real estate, etc) pledged as security to ensure re-payment of an obligation.
Corporation: A legal entity, chartered by a U.S. state or the federal government, and separate and distinct from the persons who own it. It is regarded by the courts as an artificial person; it may own property, incur debts, sue or be sued.
Credit Protection: A service offered by a Factor or a Receivable purchaser where the Factor accepts the risk of non payment in the event of the inability of the debtor to repay the debt due to debtor insolvency. (See “Non-Recourse Factoring.”)
Customer: The entity that owes money to the client and will ultimately pay the factoring company for invoices purchased; also known as the account debtor.
Customer Concentration: When a large percentage of one client’s business and accounts receivable is due from a single customer.
– D –
Debt Collection: A service offered by a Factor (or a Receivable purchaser) where the Factor collects the Receivable on behalf of the Assignor. It may also include all actions aimed at collecting amounts due from insolvent Debtors.
Debtor: An entity that owes a debt to another entity.
Default: Failure to perform or fulfill a legal duty or failure to repay a debt.
Dilution: The amount of risk associated with the collection of accounts receivable due to returns, chargebacks, trade allowances or other deductions taken by account debtors.
Discount Fee: This is the fee charged by the factoring company for performing factoring services. Discount fees are typically time-sensitive and are usually a flat, fixed percentage of the total invoice.
Due Diligence: The background check and research conducted by the factor to assess the validity of a prospective receivables factoring client (and that client’s customers) before officially entering into a commercial factoring agreement. Due diligence generally involves credit checks on the account debtors, review of the account receivables, UCC searches, lien searches and/or on-site visit with clients.
– F –
Factor: Is the company or entity purchasing accounts receivable (invoices) from the client.
Factoring: The sale of a company’s accounts receivable invoices to a factor to obtain working capital; this is also known as receivables factoring, invoice factoring, bill factoring, accounts receivable factoring, accounts receivable funding and invoice discounting. It is an popular method of financing used worldwide to help all types and size of companies.
Factoring Master Agreement (FMA): A document that outlines the terms of conditions for the factoring relationship between Factoring Company and Client.
Fictitious Name: Legal document in which an entity uses a name other than its official corporate name to operate a business. Also known as DBA or “Doing Business As.”
Finance: To raise money or capital needed for financial operations.
Financial Funding: Financial funding refers to the act of providing a financial resource in the form of cash to pay for a need, program or project.
Freight Broker: An intermediary between a shipper and a carrier.
– I –
Invoice: A legal debt instrument indicating the amount due from a customer to pay for delivered goods or services.
– L –
Lender: The party, usually a bank or a financial entity, who lends money to a Borrower.
Lien: A hold or claim that one person or entity has upon the property of another as security for repayment of a debt. When the debt is paid, the lien is removed.
Limited Liability Company: A form of business structure designed to combine the best of corporate and partnership attributes into one entity.
Line of Credit: Is the amount of credit that may be extended to a borrower by a lender.
Lockbox Account: A bank account opened in name of the borrower usually intended to facilitate in the repayment of loan or other business financing. Payments normally going directly to the borrower would be directed to this account where the lockbox would sweep a defined percentage before depositing the remainder directly into the borrower’s business checking account.
– M –
Maturity Date: The date on which a Receivable becomes due and payable.
MCA Split Funding: A cash infusion ‘sold’ to a merchant that accepts credit or debit cards as a form of payment from their customers in exchange for a small percentage of future card transactions.
Merchant Cash Advance: A type of funding that is not a loan. It is a purchase of a fixed dollar amount of a business’s future receivables. The Merchant Cash Advance provider purchases a specified dollar amount of your business’ future sales at a discount.
Money Code: Electronic transfer of funds from one entity to another.
– N –
Non-Recourse Factoring: A type of commercial receivables factoring in which the credit risk of customer non-payment due to insolvency is borne by the factor. If the client’s customer does not pay because they went bankrupt or became insolvent, the factor generally does not have recourse against the client for payment of the invoice. If the invoice is not paid for any reason other than bankruptcy or insolvency then the factor does have recourse against the client for payment of the invoice.
Notice of Assignment (NOA): A legal notice which can be issued by the Factor to a Debtor and which informs the Debtor that its related debts payable have been assigned to the Factor.
Notification Letter: A formal written communication with customers/debtors informing them of the assignment of accounts receivable of a client to a factor.
– O –
Outstanding Invoice: An invoice which has not yet been paid and remains open in the client’s aging.
– P –
Partnership: Joint ownership of a business.
Personal Guarantee: Seller assumes personal responsibility and liability for the financial obligations of an agreement, guaranteeing repayment for any shortcomings.
Profit and Loss Statement: Financial statement that shows a historical record of income and expenses for a particular business and a specific period of time.
Proof of Delivery (POD): A document that shows goods were received.
Purchase Order: Contractual agreement with a supplier of goods or services that specifies payment terms, delivery dates, item identification, quantities, terms, and all other obligations and conditions of the transaction between two parties.
Purchase Order Financing: A form of trade financing where money is advanced against a purchase order for finished goods or value-added products to finance the manufacturing of the items. Once the goods are shipped to the customer and invoiced, the transaction is closed out when the factoring company buys the invoice.
– R –
Recourse Factoring: Factor is protected in the event that a customer does not pay an invoice due to credit insolvency, bankruptcy, or for any other reason, placing full responsibility for re-payment on the client.
Reserve: An amount withheld by the factor net of the receivables factoring advance. It is used as a financial cushion to offset against payment shortages, client and the customer disputes, or any other losses due to non-payment.
Reserve Release: Process that takes place when the factor releases monies held in reserve to a client once an invoice has been paid in full.
– S –
Security Interest: An interest in property, other than real estate, which is given as security for a debt or other obligation. A security interest is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code also known as “UCC’s”.
Shipper: Party responsible for initiating a shipment of goods.
Sole Proprietorship: A business owned and operated by one individual and registered as such.
Subordination: The act of a creditor acknowledging in writing that a debt due him or her by a debtor shall be inferior to the debt due another creditor by the same debtor. Subordinations are typical between banks and finance companies depending on the type of lending facility that is in place and collateral pledged.
– U –
UCC-1: A financing statement (Form UCC1) is filed to protect a security interest in named collateral, and establishes priority in case of debtor default or bankruptcy.
Uniform Commercial Code (UCC): The Uniform Commercial Code is a set of standardized legal guidelines defining how sales and commercial transactions are to be carried out in the U.S. The code also provides a process for notification of liens filed on collateral and types of credit facilities that are in place.
– V –
Verification: Refers to the process whereby a factor verifies that the goods and services represented as provided and invoiced by the client to the customer, were in fact provided and accepted, and that the customer intends to pay the factor the money due under the invoice.
– W –
Wire Transfer: Electronic transfer of funds from one entity to another.