Important Factoring Terminology

Account – claims or invoices made against a specific customer for goods or services delivered.

Accounts Receivable - money that is owed to a company for goods and services the company has provided to customers on credit; also considered an asset.

Advance – the percentage of an invoice’s face value a factor pays upon its purchase.

Cash flow - measurement of cash a company has lost or gained during an accounting period and adjusted for accruals and other non-cash transactions.

Collateral - an asset that is owed to or given to a creditor (a factor or a financial institution) to guarantee the discharge of a payment by the debtor. The creditor has the ability to seize the asset and sell it to pay off the loan.

Discount Fee - profits earned by a factor on each invoice purchased based on the time it takes for the invoice to be paid by the client. Discount fees are set forth and agreed upon by both parties in the Discount Schedule.

Discount Rate – a required factors fee determined by the percentage of the face value of an invoice

Face Amount - also known as face value; the amount that has to be paid to the factor by the client’s customer, without concern as to how much was already advanced to the client.

Factoring – the process of when a company purchases debts owed, or accounts receivable, in exchange for immediate payment to a business owner at a discount.

Invoice – a legal debt instrument or document that indicates the amount a customer owes for delivered goods or services. Invoices can be traded or sold.

Invoice Discounting – instant cash advance given by issuing invoices that does not require sale ledger and collection services.

Liability – a financial obligation, claim, potential loss, or debt. In most cases, short-term liabilities are debt on terms of less than five years, and long-term liabilities are debt for longer than five years.

Non-Notification – a type of confidential factoring where the customers are not notified of the client’s services being implemented with the factor.

Non-Recourse – type of factoring where the A R factoring, company assumes all reliability for the collection of debt. The factoring company will be held responsible for debt not collected due to the financial inability of the customer.

Note – a written document to promise to pay a named amount to a particular company or business by a specific date

Notification – a written notice from the factor that lets an account debtor know an invoice has been purchased from the client and the debtor is to pay the factor directly.

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