Term

Definition

Accounts Payable

Amounts owed to other companies for goods and services.

Accounts Receivable

Amounts owed by other companies for goods and services.

Advance

A percentage of an Invoice paid to a Client by a Factor upon sale of the Invoice by the Client.

Aging Report

A summary of a Client’s Accounts Receivable, broken down by Customer and/or length of time the receivables have been outstanding.

Assets

Anything of commercial or exchange value a business, institution or individual owns. Assets include cash, property, and Accounts Receivable.

Assignment

Term used when Accounts Receivable are factored. The Client’s right to the accounts is sold, or assigned, to a Factor.

Bad Debt

Unpaid receivables which have been written off as uncollectable.

Balance Sheet

A financial report which lists a company’s Assets, Liabilities, and the difference (shown as equity), on a given date.

Bank Wire

A means of electronically sending money from one bank account to another.

Break-Even Point

The level at which a business’ total costs equal total revenue.

Broker

An individual or business who, for a fee, matches a company seeking factoring services with a Factor appropriate for that company’s needs.

Cardinal Rule of Money

“Don’t risk more than you can afford to lose” on a given transaction, Client, or Customer.

Cash Flow

The difference between cash received and cash paid out.

Client

A company who factors its Accounts Receivable.

Co-Factoring

A process by which two or more Factors combine their resources to provide funds and/or services, and share in Fees which result. Also called Participation.

Concentration

The portion of a Factor’s total factoring funds vested in a single Client or Customer.

Credit Report

A report obtained from a commercial credit agency which lists the payment history, debts, public records, and credit risk of a company or individual.

Customer

The company who has received products or services from a Client and will pay the resulting Invoice(s). Referred to by some factors as the Debtor.

DBA

Abbreviation of “Doing Business As.”

Debtor

The company who has received products or services from a Client and will pay the resulting Invoice(s). Referred to by some factors as the Customer.

Discount

The amount paid by the Client to the Factor for the factor’s services; it is calculated by subtracting the total amount Advanced and Rebated by the Factor from the face value of the Invoice. Also called the factoring fee.

Discount Schedule

A document that shows the Discount (or factoring fee) paid to the Factor based on the length of time a Customer takes to pay an Invoice.

Due Diligence

Information gathered by a Factor to determine whether or not to accept a Client and/or Customer. Also referred to as Underwriting.

Factor

A company or individual who purchases Accounts Receivable from a Client at a Discount from the face value of the Receivables.

Factoring

The sale of Accounts Receivable at a Discount to a Factor.

Fees

Amounts charged by a Factor for: a) the Discount b) Application and Due Diligence processing and/or c) funds transfer costs such as Bank Wires and overnight delivery.

Financial Statements

Reports, which may be requested or required as part of a Factor’s Due Diligence. The most commonly requested are a Profit & Loss Statement (P&L, also called Income Statement), a Balance Sheet and a business owner’s personal Net Worth Statement.

Fixed Costs

Expenses which do not vary with the volume of one’s business.

Invoice

A document from a company to a Customer that states the amount owed by a Customer for goods or services rendered by the company.

Liabilities

Claims on the Assets of a company or individual, excluding the owner’s equity. Liabilities include Accounts Payable, other debts, taxes owed, etc.

Limit

The maximum amount that will be Advanced by a Factor to a Client for all Customers or for a specific Customer.

Lien

A legal claim against property or other assets, submitted to state and/or county authorities. Factors commonly file a Lien (UCC-1) against a Client’s Assets to secure against possible loss.

Loan

A sum of money provided to an individual or company that is to be repaid with interest. Factoring is not a Loan.

Net Worth Statement

The list of an individual’s Assets, Liabilities, and the difference between them.

Non-notification

Term used when a Customer is intentionally not made aware that a Client is Factoring their Invoices.

Nonrecourse Factoring

If a Customer does not pay the Factor within a specific period of time, the Client is not responsible for repaying the Factor the Advance and Discount (provided the invoice is not disputed).

Notice of Assignment

A document given to a Customer stating a Client’s invoices have been factored and that payment should be made to the Factor.

Notification

The term used when a Customer is made aware that a Client is Factoring.

Operating Profit

The amount of Fees generated in excess of Fixed Costs plus Variable Costs.

Opt-In Email

The practice of sending commercial e-mail to recipients that have agreed to receive messages on a particular subject.

Overhead

The costs of a business that do not include cost of goods sold; sometimes called indirect costs and expenses.

Participation

A process by which two or more Factors combine their resources to provide funds and/or services, and share in Fees which result. Also called Co-Factoring.

Personal Guaranty

A contractual agreement between a Factor and business owner or corporation executive in which the owner or executive assumes personal responsibility and liability for the obligations of the business to the Factor.

Profit and Loss Statement

A Financial Statement that shows the income, expenses, and net profit or net loss for a given period of time (usually monthly, quarterly, and yearly).

Purchase Order

A document itemizing an order for goods or services from a Customer that includes items desired and prices.

Purchase Order Funding

A means of financing by which a Factor or other funding source Advances cash for a Purchase Order.

Quantity Discounts

A price reduction received by companies when they purchase larger amounts of a product.

Rebate

The balance of the amount paid for an Invoice minus the Advance plus Fee, which is paid by a Factor to a Client after receiving payment from a Customer. Its formula: Rebate = Invoice Amount Paid – (Advance + Fee).

Recourse Factoring

If a Customer does not pay the Factor within a specific period of time, the Client is responsible for repaying the Factor the Advance and Fee.

Reserve

The Invoice amount minus the Advance plus the Fee, which a Factor holds until a Rebate is due.

Schedule of Accounts

A document provided by a Factor that lists all Invoices factored at a given time by a Client. It includes at least the Customer, Invoice number, Invoice amount, Invoice date, and signature of the Client with a declaration of Assignment to the Factor.

Spam or Spamming

Email that is sent to a large number of recipients without their permission.

Spot Factoring

The process of Factoring one or very few invoices on a one-time or rare basis.

UCC-1

Abbreviated term for Uniform Commercial Code-1. A document filed with the Secretary of State and/or County Recording Clerk in which the Client’s property being secured is located. With Factoring, this filing evidences and perfects a Factor’s security interest in a Client’s personal property, especially Accounts Receivable.

UCC-3

Abbreviated term for Uniform Commercial Code-3. A document filed with the Secretary of State and/or County Recording Clerk to declare a change in a UCC-1 previously filed, such as termination of security interest or another change.

Underwriting

Information gathered by a Factor to determine whether or not to accept a Client and/or Customer. Also referred to as Due Diligence.

Uniform Commercial Code

A law which regulates the transfer of personal property.

Usury

Laws (which vary from state to state) that regulate the amount of interest which can be charged to a borrower.

Variable Costs

Expenses which vary with the volume of business.

Venture Capital

Funds invested in a business usually considered high-risk. Investment is made by individuals, companies, or institutions, and commonly results in the investors owning a portion of the business.

Verification

The procedure by which a Factor confirms the validity of Assigned Invoices from a Client. Ordinarily, a Factor will determine the product has been rendered to the satisfaction of the Customer, the Customer intends to pay, and payment will be made to the Factor.

Volume, Monthly

The total amount of Invoices factored by a Client during a month’s time.

WIIFM

Pronounced “Whiff-em,” abbreviation of “What’s In It For Me?”

Wire

See Bank Wire.