Terms to Know

Knowing common industry terms is important when communicating with vendors and negotiating the terms of your agreement.  Here are some common terms and their definitions:

Advance Amount: The amount of cash paid to a business up front in exchange future credit card revenues.

Assignment: The transfer of rights from one business to another.  In a factoring context, invoices are “assigned” to the factor, meaning that the factor has the right to collect payment.

Business Cash Advance: Also called a “merchant cash advance,” this is a transaction where a business “sells” future credit card transactions in exchange a cash “advance.”

Business Factoring: A transaction similar to a cash advance.  In factoring, a business “sells” unpaid invoices or accounts receivable to a factoring company at a reduced rate. The factoring company takes over the right to collect on the invoices.

Cash Advance Provider: The business that provides purchases future revenues and merchant advances cash payments.  Providers often specialize in this type of service.

Daily Retrieval Rate: The amount collected or retrieved from daily credit card revenue that is transferred to the advance provider as repayment.

Factoring Fee:  The amount a factor charges for their services, expressed as a percentage of the invoice or account that a factor purchases. 

Factoring Service Provider: A business that purchases invoices or accounts receivable from other businesses.  

Safe Retrieval Percentage:  Percentage of daily sales that can be “safely” allocated toward repayment of the advance without causing financial harm to the business. 

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