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Glossary of Accounts Receivable Factoring Terms

account: also known as the account debtor

accounts payable: The amount of money a company owes for goods and services it has received; any accounts due and owing.

account receivable: a balance due from a debtor on a current account.

accounts receivable: A collection of a company's outstanding invoices (invoices which have not yet been paid by the company's customers).

accounts receivable financing: the purchase of the face value of a companies accounts receivables or invoices by a factoring company at a discount in exchange for an immediate cash advance usually in the form of a wire transfer. Same as "financing accounts receivables".

accounts receivable aging report: a financial report showing how long invoices from each customer have been outstanding.

advance rate: the percentage of the face value amount of an invoice that a funding source will advance to a client.

articles of incorporation: a document filed with a U.S. state by the founders of a corporation. After approving the articles, the state issues a Certificate of Incorporation; the two documents together become the Charter of Incorporation.

asset: anything having commercial or exchange value that is owned by a business, institution or individual. A business' assets might include its real estate, equipment inventory, intellectual assets such as copyrights or trademarks, and accounts receivable.

assignability: the ability to assign (or sell) an income stream to another individual or business.

assignee: the person or business entity who is given, obtains, or buys the right to an asset.

assignment: the transfer of the rights, title or interest of any debt instrument that is properly owned by another party.

assignor: the person giving or selling an asset, and subsequently, forfeiting rights to that asset.

bad debt: any debt that is delinquent and has been written off as uncollectible.

balance and income statement: an accounting statement of financial condition that reports the company's assets, liabilities, and equity at a given point in time.

balance sheet: a financial statement that shows a business's current financial condition, with assets on the left side and liabilities and net worth on the right side.

bankruptcy: a state of insolvency of an individual or organization. The inability to pay debts.

beneficiary: The person or party entitled to receive the benefits, or proceeds, of the life insurance policy upon the death of the insured person.

bill of lading: A shipping document which gives instructions to the company transporting the goods.

bill of sale: A document used to transfer the title of certain goods from seller to buyer.

creditworthiness: the process of determining the credit limit assigned to each account debtor for the purposes of advancing funds against invoice(s) which they owe.

invoice: an itemized statement furnished to a purchaser by a seller and usually specifying the price of goods or services and the terms of sale.

cash flow: the flow of cash through a business. In business terms, cash flow involves the flow of cash into a company in the form of revenues, and out of the company in the form of expenses.

cash flow instrument: future payment or series of payments. Also called a debt instrument or income stream.

cash flow transaction: occurs whenever a funding source pays cash to an individual or business in exchange for an income stream.

chattel: any article of tangible property other than land, buildings, equipment, inventory, or other items annexed to such.

client: the business having the financing relationship with the lender.

collateral: something of value that is pledged as security to ensure the payment of a debt. Collateral is promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral.

collateral-based income streams: cash flow instruments that are secured by collateral.

collectible: refers to the funding source's ability to collect future income stream payments once they are purchased.

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 insurance: third party insurance companies that underwrite the value of the outstanding invoice. Under the specific terms of the policy, unpaid invoices will be covered and proceeds will be given to the policy holder.

creditor: one who is owed payments on a debt by a debtor.

customer: the account debtor (end user) who does business with the client (vendor)

debt instrument: future payment or series of payments, or a debt that one party owes to another party. Also known as income streams or cash flow instruments.

debtor: one who owes something and makes payments to a creditor.

default: the omission or failure to perform or fulfill a legal duty, obligation, or promise (i.e. to pay a debt).

discount fee: the percentage of the face value of the invoice taken in exchange for making an advance on an invoice.

doing business as (dba): a legal statement filed when a person uses a name other than his or her own to operate a business.

due diligence: exhaustive research on a transaction, income stream, client, and/or payor; may involve credit checks, appraisals, UCC searches, lien searches, or on-site visits with clients.

equity: the value or interest an owner has in property over and above any indebtedness owed on the property.

escrow: the system by which money documents, personal property, or real property is held in trust for another party by a disinterested third party until the terms and conditions of the escrow instructions are completed or terminated.

face value: the total current principal balance on an invoice

factor: a funding source that specializes in funding accounts receivable.

factoring: the purchasing of accounts receivable from a business by a factor who assumes the risk of loss in return for some agreed discount.

factoring rate: same as discount fee; percentage of invoice amount a factor charges for funding an invoice.

financing: the act or process or an instance of raising or providing funds; also: the funds thus raised or provided.

financing accounts receivables: the purchase of the face value of a company's accounts receivables or invoices by a factoring company at a discount in exchange for an immediate cash advance usually in the form of a wire transfer. Same as "accounts receivable financing".

financing statement: the UCC document filed with local state authorities to designate the owner of rights to stated collateral.

foreclosure: a legal proceeding in court to seize property given as security for a debt that is in default.

government-based income: cash flows paid by a government entity, either directly or through a sub-contractor.

income stream: a future payment or series of payments, or a debt that one party owes to another party. Also known as a debt instrument or cash flow instrument.

institutional lenders: savings and loan associations, local and regional banks, mortgage companies, finance companies, and commercial lenders.

intangible personal property: something that has value but is not a tangible asset, for example, a trademark, copyright, patent, or trade secret.

investment-to-value ratio: a measure of how secure a creditor's position is and how likely the creditor is to recoup all of his or her money in the event of a foreclosure.

joint venture: a business entity established for a specific task, operation, or goal.

leverage: the ratio of debt to total assets.

limited liability company: a form of business structure designed to combine the best of corporate and partnership attributes into one entity.

loan-to-value ratio: a measure of how heavily mortgaged a property is and how likely the owner is to default on his or her debts.

notification: the process by which the factor notifies the account debtor that all proceeds due and owning must be paid directly to the factor by law.

partnership: a common form of joint ownership of a business.

payee: person or business that has the right to receive a payment or series of payments and is interested in selling that income stream for cash. Also called the seller or client.

payor: the person, company, or government responsible for making payments on an income stream.

partial: any part of a payment stream that is less than the full amount due.

personal guaranty: a contractual agreement between a funding source and a seller, whereby the seller assumes personal responsibility and liability for the obligations of the income stream.

portfolio: a group or package of income streams of the same type. privately held: stock owned in the company by the business owners rather than shares sold in the public markets.

profit and loss statement: a financial statement that shows a historical record of a business's income and expenses.

promissory note: a written promise to pay a specified amount to a specified party over a certain period of time.

purchase and sale agreement: the actual contract between factor and client that legally sets out the terms and conditions for the financing relationship

replevin: a legal proceeding in court to seize property (other than real estate) given as security for a debt that is in default.

reserve: an amount a funding source holds in its account to cover potential payment defaults. It is tied to the advance and the discount fee. After the advance, the reserve is held until the debt is covered. The fee is deducted and the remainder of the reserve is refunded.

satisfaction: the discharge of an obligation by paying a party what is due, i.e., the satisfaction of an IRS lien or the satisfaction of a mortgage.

seasoning: the length of time payments have been made on a note or other debt instrument.

securitization: the bundling and resale of debt instruments to investors; permitted only for parties licensed and regulated by the SEC.

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.

seller: the person or company that is holding a debt instrument and wants to sell it.

sign off: a legal acknowledgment from the account debtor on a bill as due and owing.

sole proprietorship: a business owned and operated by an individual.

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.

tangible property: property other than real estate, such as cars, boats, or other assets.

trial balance: a debit and credit worksheet in accounting showing the financial condition of the business at the period stated.

Uniform Commercial Code (UCC): rules of law that delineate the structure of obtaining security on collateral. The UCC determines who has rights to collateral that has been pledged in return for credit.

verification: the process of verifying the veracity (or truthfulness) of the invoice value from the customer.