Glossary

Select a term from the list to view its definition.

 

Account debtor Account receivable Administration charge
Advance Aged balance report Ageing
Agency factoring Ancillary rights AML policy
Approved Asset Based Funding Asset based lending
Assignment Assignment clause Assignment notice
Associate Associated rights Availability
Bad debt Back-to-back factoring Balance payment
Ban on assignment Bank payment order - BPO Batch
Bill of exchange / draft Bulk factoring Buyer
Chain Charge back Clean bill of exchange
Client Collection date Collection only
Collection report Commission Concentration
Confidential factoring Conversion Contra
Correspondent factor Credit approval Credit limit
Credit insurance Credit line Credit protection
Credit risk Current account Current Assets
Current liabilities Customer Cut-off clause
Dated Invoices Debit back Debt
Debt turn Debtor Debts purchased accounts
Dilution Direct export factoring Direct import factoring
Disapproved Disclosed invoice discounting Disclosed invoice discounting
Discount charge Discount tolerance letter Dispute
Dispute notice Documentary bill of exchange Domestic factoring
Due diligence  
Early payment EBRD Eligible debt
Export factor    
Factoring Factors Chain International - FCI Facultative agreement
Field audit Fixed Assets Forward dating of invoices
Full factoring Funding limit   Funds in use
GRIF Guarantees  
Import factor Inco terms Indirect payment
Ineligible debt Initial advance Interfactor agreement
International Chamber of Commerce- ICC International factoring International Factors Group - IFG
International Finance Corporation - IFC Introductory letter Invoice discounting
Invoice finance Invoice trading platform
Know your client/customer - KYC  
Lender Letter of Credit
Liquidity ratio  
Maturity date Maturity factoring Maturity period
Merchant Trade Financing Minimum balance  
Non-notification factoring Non-recourse factoring Notification
Old line factoring Open item sales accounting  
Payment report Peer-to-peer lending Permitted limit
Pre-payment Pre-shipment credit cover Pre-shipment finance
Purchase ledger    
Receivable Recourse Recourse factoring
Refactoring charge Refactoring charge Retention
Reassignment Reserve Reverse factoring
Sales ledger Schedule of offer Securitisation of receivables
Seller Service charge Standby letter of credit
Supplier Supply chain finance Survey
SWIFT    
Take on debts Total funds in use Trade finance
Two factor system Turnover
Unapproved Undisclosed factoring  Usance letter of credit
Vanilla factoring Verification  
Waiver Whole turnover agreement  Wolfsberg questionnaire

 

 

 

Account debtor Debtor.

 

Account receivable Debt.

 

Administration charge Charge made by the factor for administering the sales ledger, which may include debt collection and credit insurance. The charge is usually calculated as a percentage of the total value of invoices purchased. 

 

Advance Sometimes known as prepayment, a payment made by the factor to the client on purchase of debts from the client.

 

Aged balance report A schedule of outstanding debts analysed by reference to their due dates.

 

Ageing The analysis of outstanding debts with specific regard to their due dates.

 

Agency factoring Sometimes termed Bulk factoring, a service which enables the client to retain the collection function, but which is disclosed to the debtor.

 

AML Policy Anti-money laundering policy, put in place to avoid fraudulent activity connected to money laundering.

 

Ancillary rights All rights over a contract of sale or service which give rise to a debt.  This includes all rights to returned debts, all guarantees and all insurance related to a debt.

 

Approved If used in the context of non-recourse factoring:  an approved debt is one for which the factor has no recourse to the client in the event of the debtor’s inability to pay the debt. If used in the context of most forms of factoring (with the exception of maturity), an approved debt is eligible for an advance payment on account of its purchase price.

 

Asset Based Funding Form of finance, primarily based on invoice discounting, but where other assets are taken into consideration, such as stock and property, to provide higher levels of advances to clients.

 

Asset Based Lending A structured facility which includes secured loans and revolving credits (e.g. A/R, stock, plant & machinery. Arrangements can be complex and therefore more often utilised by larger companies. Very large deals can be syndicated between more than one ABL provider.

 

Assignment An agreement by a creditor to transfer the rights of ownership of a debt to a third party.

 

Assignment clause Written notification to the debtor/buyer that the A/R has been assigned and is payable to the designated factoring company. This usually appears on the invoice.

 

Assignment notice A notice to the debtor of an assignment of the debt to a factor and instructing payment to be made to the factor.

 

Associate An individual who is linked to the client for reasons including common control or relationship.

 

Associated rights See ancillary rights.

 

Availability The sum payable, at any one time, to the client by the factor for the purchase price of debts sold to the factor.

 

Bad debt A debt deemed as not payable due to the inability/failiure of the buyer to meet his payment obligation

 

Back-to-back factoring The provision of factoring services to a debtor in order to provide security for the approval of the debtor's indebtedness arising from the sales of another client (Salinger 1995).

 

Balance payment The payment of the purchase price of a debt (purchased by the factor), after the deduction of any advance payments made towards that price, on the collection date of the debt.

 

Ban on assignment A clause within the buyers terms and conditions of purchase which prohibits the seller from assigning the A/R to a third party.

 

Bank Payment Order - BPO The BPO offers the benefits of a letter of credit in an electronic environment, without the drawbacks of manual processing associated with traditional trade finance. Using SWIFTS Trade Service utility (TSU) or an equivalent transaction matching program, A BPO is an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date after a specified event has taken place.

 

Batch A group of copy invoices which come with a notification.

 

Bill of exchange / draft An undertaking by the buyer to pay either at sight or or on a fixed future date.

 

Bulk factoring Another term for Agency factoring.

 

Buyer The client/supplier's buyer who is liable to pay any A/R raised in repsect of goods or services rendered. See also debtor

 

Chain An international association of correspondent factors.

 

Charge back A sum payable to the factor by the client for a debt which is subject to recourse.

 

Clean bill of exchange See bill of exchange. This format is not supported by any documents pertinent to the transaction.

 

Client Business that has entered into a factoring arrangement with a factor.

 

Collection date The date on which a factor receives payment for a debt.

 

Collection only An arrangement in which the factor is required to pay the purchase price on the collection date only (i.e. with no prepayments).

 

Collection report A report made by the factor to their client detailing payments received from debtors.

 

Commission see Administration charge.

 

Confidential factoring A factoring arrangement whereby the debtors are not notified of the assignment to the factor. The client collects the debts as agent for the factor.

 

Concentration Where one buyer represents a large proportion of the seller's total A/R

 

Contra An account of the seller whose value offsets the value of an equivalent account of the debtor usually where each party is selling to each other. Usually ineligible for factoring purposes

 

Conversion US legal term:  the unauthorised exercise of ownership over personal property belonging to another, resulting in exclusion of the owner's rights or in alteration of the personal property.  This term can be used to describe a scenario in which a factor does not pay its client the amount that it is owed.

 

Correspondent factor A factor that acts as an import factor or export factor under the two factor system.

 

Credit approval Is given when the factor accepts the credit risk assumed by taking a debt from a client without recourse to that client in the event of a payment default.

 

Credit insurance Trade credit protection against buyer default and insolvency, for the seller, provided by a trade credit insurance company

 

Credit limit The maximum amount of outstanding debts which a factor is prepared to approve with regard to a specific debtor.

 

Credit line See credit limit.

 

Credit protection See credit approval.

 

Credit risk The risk incurred by a factor who has no recourse to their client.  This risk is based on the inability of the debtor to pay their debt to the factor.

 

Current account An ongoing account between the client and factor recording all of the transactions which occur between them.

 

Current assets Cash or those assets that can readily be turned into cash e.g. stock, debtors, short term investments, cash at bank.

 

Current liabilities Liabilities due to be paid within one year e.g. trade creditors, loans, bank overdraft.

 

Customer Customer of the factor's client i.e. the debtor.

 

Cut-off clause A clause within a contract of sale or service which stipulates that each invoice should be regarded as arising from a separate contract.

 

Dated Invoices Invoices which have been forward dated.

 

Debit back See charge back.

 

Debt The total amount of a debtor’s obligations under a contract of sale or service.

 

Debt turn The average credit period used by a client’s debtors.

 

Debtor One who is contractually indebted to a client for the sale of goods or services.

 

Debts purchased accounts An account on which a factor records the value of all the unmatured debts which they have purchased.

 

Dilution An amount deducted legally from the payment of an invoice (e.g. discounts, credit notes)

 

Direct export factoring Export factoring without the use of a correspondent factor.

 

Direct import factoring Import factoring services to an exporter in another country without the use of a correspondent factor.

 

Disapproved With regard to a debt, one which is not approved.

 

Disclosed invoice discounting See agency factoring.

 

Discount charge Charge made by a factor for the provision of funds usually calculated as a percentage of the amounts advanced. This is a UK term. In other countries this charge is generally called the interest charge.

 

Discount tolerance letter A letter sent to the factor by the client in which the client agrees to the limits of any settlement discount (dependent on time and amount) which the factor is prepared to allow.

 

Dispute A dispute arises when a debtor refuses to accept the invoice and goods or services which relate to a debt which a factor has purchased.

 

Dispute notice Written notification to the client from the factor informing the client of a dispute.

 

Documentary bill of exchange See Bill of Exchange. Buyer can only gain ownership of the legal deeds of title of goods purchased once the BOE is accepted for payment. See ICC rules. 

 

Domestic factoring The factoring of debts by clients with debtors in the same country.

 

Due diligence A business term for conducting an investigation into the 'facts'. Usually in respect of the client or prospective client. Part of the KYC process.

 

Early payment See prepayment.

 

EBRD European Bank for Reconstruction and Development. See: www.ebrd.com  

 

Eligible debt A debt on which the client may draw a prepayment on account of the purchase price, subject to the factor’s prescription.

 

Export factor A factor who provides funding for his clients exports using the two factor system.

 

Factoring The generic name for all types of factoring agreements.

 

Factors Chain International - FCI A global association that facilitates two factor cross border international factoring in a structured environment under the General Rules for International Factoring (FCI version)

 

Facultative agreement An agreement in which provision is made for each individual debt to be offered by the client to the factor who is at liberty to accept or reject the individual debts at will.

 

Field audit A field audit is an investigation intp the financial records and daily management of a client/seller/prospective client, carried out by the factor usually on the premises of the client as part of the due diligence/KYC process.

 

Fixed Assets All tangible and intangible assets plus investments.

 

Forward dating of invoices A mechanism which allows the client to award an extension of the credit period to the debtor.  In this process the client advances the date on the invoice to one after that on which it is issued and accordingly the collection date is advanced as it is calculated from a later date.

 

Full factoring The provision of factoring services whereby the factor takes on the administration functions of the sales ledger including debt collection and possibly bad debt relief.

 

Funding limit The maximum value available to a client against his assigned A/R.

 

Funds in use The total amount of funds advanced to the client prior to collection by the factor.

 

GRIF General Rules for International Factoring. The rules which the members of FCI and IFG agree to adopt when transacting two factor cross border factoring. (Two versions exist - FCI and IFG)

 

Guarantees A trade finance product. A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. The sum is payable paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non-performance by the other party in a contract.

 

Import factor A correspondent factor, usually in the country of the debtor, who is responsible for the collection and/or credit risk by sub-assignment of the debts.

 

Inco terms International Commercial Terms (‘Inco terms’) are internationally recognised standard trade terms used in sales contracts. They’re used to make sure buyer and seller know: Who is responsible for the cost of transporting the goods, where the goods should be picked up from and transported to and who is responsible for each step of the transportation process.

 

Indirect payment A payment made to the client by a debtor

 

Ineligible debt A debt with regard to which the factor is not prepared to make a prepayment on account of the purchase price.

 

Initial advance The amount of funds made available to the client on receipt of invoices, expressed as a percentage of total invoice value.

 

Interfactor agreement An agreement between correspondent factors whereby they mutually agree to act as import and export factors in accordance with a code of practice (Salinger, 1995)

 

International Chamber of Commerce - ICC See www.iccwbo.org

 

International factoring A generic term for import and export factoring

 

International Factors Group - IFG A trade association representing global factoring and asset based lending institutions which also facilitates two factor cross border international factoring in a structured environment under the General Rules for International Factoring (IFG version)

 

International Finance Corporation - IFC  A member of the World Bank Group. See www.ifc.org

 

Introductory letter A letter sent by the client to each of their debtors.

 

Invoice discounting Confidential factoring, usually with recourse, whereby the client continues to collect the debt from his customers, but on behalf of the factor.

 

Invoice finance See factoring

 

Invoice trading platform An alternative to factoring, the on line platform allows sellers to place individual invoices for auction. Investors or buyers can then bid for the invoice resulting in an advance payment to the seller.

 

Know your client/customer - KYC A customer/client identification process which involves making certain efforts to verify the true identity of key individuals in a business. Part of the AML/due diligence process

 

Lender The factor or financial institution providing the finance

 

Letter of Credit A trade finance facility. An engagement by a bank made at the request of the buyer to pay a certain amount to a benificiary. The payment must be in compliance with all the conditions specified in the credit. A secure and common payment method especially common where relationship is long distance and consdiered too risky for open account terms. AKA a documentary credit.

 

Liquidity ratio Ratio of current assets to current liabilities.

 

Maturity date The date on which the full or balance payment of a debt purchased by a factor is due.

 

Maturity factoring A type of factoring in which the payment of the purchase price of each debt is to be made on the maturity date of the debt.

 

Maturity period The period of time between the issue date of an invoice (which has been purchased by a factor) and the maturity date relating to the purchased debt.

 

Merchant Trade Financing Form of finance whereby the merchant trader, under an arrangement with the client, purchases goods from the client for immediate payment, and then, acting as agent, sells directly to the client’s customer.

 

Minimum balance Retention.

 

Non-notification factoring Confidential factoring.

 

Non-recourse factoring Full factoring whereby the factor takes the risk of the debtor defaulting on approved debts and therefore has no right of recourse to the client in such circumstances.

 

Notification The client’s notification to the factor of fresh invoices coming into existence, usually by the submission of fresh invoices. Also sometimes used to denote notification to the debtor that an assignment is in place.

 

Old line factoring Full factoring.

 

Open item sales accounting System of accounting by which the balance owing is broken down into unpaid individual invoices.

 

Payment report Report from a factor to client showing status of debtor payments.

 

Peer-to-peer lending Peer-to-peer lending is the practice of lending money to unrelated individuals, or "peers", without going through a traditional financial intermediary such as a bank or other traditional financial institution. See also invoice trading platform.

 

Permitted limit Credit limit.

 

Pre-payment Payment by the factor to the client on purchase of debts from the factor.

 

Pre-shipment credit cover Covers the cost of production for goods and services in a supply contract up to the maximum of the contract value.

 

Pre-shipment finance Pre-shipment finance is issued by a financial institution when the seller requires payment of the goods before shipment. The main objectives behind pre-shipment finance or pre export finance is to enable exporter to:procure raw materials, carry out the manufacturing procedure, warehousing of goods and raw material, shipping costs, other financial costs, pre-shipment.

 

Purchase ledger A system in accountancy whereby a business records and monitors its credits. It contains the individual accounts of suppliers from whom the business has made purchases on credit.

 

Reassignment Transfer of ownership of a receivables back to a supplier/client or from an import factor to an export factor.

 

Receivable Debt.

 

Recourse The factors right to payment of a debt, if necessary, by recourse to the client.

 

Recourse factoring Whereby the factor has recourse to the client in respect of any unpaid factored invoices.

 

Refactoring charge Additional charge by factor when an unpaid invoice reaches a certain age.

 

Refactoring charge Additional administration charge made by a factor to a client when a debt remains unpaid for a specified period.

 

Reserve The part of the receivables ledger retained by the factor/financier to cover risk such as ineligible debt.

 

Retention A minimum credit balance held by the factor in the client’s account.

 

Reverse Factoring Unlike traditional factoring, where a supplier is able to finance his receivables, reverse factoring (or supply chain finance) is a financing solution initiated by the ordering party (usually a well rated corporate buyer) in order to help his suppliers (usually SMEs), to finance their receivables more easily and at a lower interest rate than what they would normally be offered. 

 

Sales ledger A system in accountancy whereby a business records and monitors its trade debtors. It contains the individual accounts of debtors/buyers often by age of the debt and / or outstanding balance.

 

Schedule of offer A list of invoices offered by the client to the factor for purchase.

 

Securitisation of receivables A financing process by which the A/R is structured into debt securities that can be sold to investors on the capital market for cash capital.

 

Seller Client.

 

Service charge Administration charge.

 

Standby letter of credit Standby letters of credit are often used in international trade finance transactions. The seller will ask for a standby letter of credit, which can be cashed on demand if the buyer fails to make payment by the date specified in the contract. 

 

Supplier Client.

 

Supply chain finance See reverse factoring.

 

Survey A factor inspection of a prospective client’s records and business in general for the purposes of suitability of entering into a factoring arrangement.

 

Survey Survey of a prospective client's business records to assess suitability for factoring.

 

SWIFT Society for Worldwide Interbank Financial Communication. A network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment

 

Take on The adoption of initial debts purchased by factor when commencing a factoring relationship.

 

Total funds in use The total amount of funds owing to the factor by the client at any one time.

 

Trade Finance The financing of international trade (also domestic trade) can include: Letters of credit, guarantees, bills of exchange and export credit 

 

Turnover All income derived from administration services provided plus discount/interest charges.

 

Two factor system System whereby a factor uses, by sub-assignment, a factor in another country to take on the credit risk and collect the debt of a client exporting to a customer in that country.

 

Unapproved Debts assigned to a factor, but where prepayment is not approved.

 

Undisclosed factoring Another term for confidential factoring.

 

Usance letter of credit A letter of credit payable at a future date against conforming documents.

 

Vanilla Factoring The basic factoring product

 

Verification A service offer by the factor/financier to establish the validity of a debt / receivable before its due payment date.

 

Waiver A release of debts from a charge or other encumbrance – for example, a bank overdraft.

 

Whole turnover agreement An agreement for the assignment of all existing and future debts to a factor by a client.

 

Wolfsberg Questionnaire Designed by the Wolfsberg Group it is an anti money laundering questionnaire designed to provide an overview of a financial institutions anti money laundering policies and procedures.