Glossary

The amount of money a company owes for goods and services it has received; any outstanding debt that a company has.

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

A report showing how long invoices from each customer have been outstanding.

The percentage of the face amount of an invoice that a factor will advance to a client as funding for a factoring transaction.

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.

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 invoices.

The person or business entity who is given, obtains, or buys the right to an asset. In a factoring transaction, the factor becomes the assignee for the invoices.

The transfer of the rights, title or interest of any debt instrument that is properly owned by another party. In a factoring transaction, the right to collect on the issued invoices is transferred from the business to the factor.

The person giving or selling an asset, and subsequently, forfeiting rights to that asset.

A person who is empowered to execute a legally binding document on behalf of a corporation, partnership or other entity.

Any debt or income stream that is delinquent and has been written off as "uncollectible."

A reserve of funds held back by a factor when purchasing invoices to offset its losses in the event of non-payment. Once the reserve reaches a predetermined size sufficient to protect the funding source's investment, part of the reserve is rebated to the client.

A financial report that shows what an individual, business or other entity owns (its assets), what it owes (its liabilities) and the amount of its net worth or equity.

A state of insolvency of an individual or organization. The inability to pay debts.

A shipping document which gives instructions to the company transporting the goods.

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

The client in a factoring relationship is the company that is in need of cash and wants to sell its invoices to the factor.

An asset promised to a lender until a loan is repaid. If the borrower defaults, the lender has the right, by law, to seize the collateral and sell it to pay off the loan.

Insurance against extraordinary losses from the ultimate uncollectibility of accounts receivable.

The portion of a client's total accounts receivable due from a single customer. A customer's account that comprises 50 percent of a client's total invoices is highly "concentrated."

A legal entity, chartered by a U.S. state or 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.

Rules governing the internal management of an organization which, in the case of business corporations, are drawn up at the time of incorporation.

An action taken by vote of the directors of a corporation.

The cost of all the materials needed to make the client's product.

A review of the record and financial affairs of an individual or corporation to ascertain credit worthiness.

One to whom money is owed from a debtor.

The client's customers (recipients of the client's products or services) who are responsible for payment of an invoice. Customers are also referred to as payors or account debtors.

Abbreviation for "Doing Business As."

One who owes something and makes payment to a creditor.

The omission or failure to perform or fulfill a legal duty, obligation or promise.

Documentary proof that shipment of good invoiced as sales has occurred.

The percentage of the face amount of an invoice that a factor keeps or charges as its fee for factoring and other services. Also called the factor's fee.

The process through which brokers and funding sources assess the risk and authenticity of a deal. It consists of the gathering and verification of information and documentation necessary for the funding source to make an informed decision as to whether to accept a prospect as a client, thereby reducing the funding source's overall risk of loss.

The value of a security as stated on the instrument. Also referred to as "par value" or "nominal value."

(1) (noun) A funding source that purchases invoices, or (2) (verb) to purchase invoices from a client.

Costs that remain constant over a wide range of volume.

Overhead; expenses that will not change regardless of sales volume.

The advance of monies based on the sale of invoices to a factor.

The rate paid on money that is borrowed, usually stated as percentage rate per year. (Factoring does not involve charging interest.)

An itemized list of goods and/or services sold or delivered to a buyer, including all prices and charges.

Claims on the assets of a company or individual excluding ownership equity.

A hold or claim which one person or entity has upon the property of another as security for repayment of a debt.

A characteristic of factoring, whereby the factor takes assignment of the invoice and notifies the customers of the client to pay the factor directly.

The costs of a business that are not directly associated with production or sale of goods or services. Also called indirect costs, fixed costs or expenses.

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

A penalty for the payment of a debt before it becomes due.

Summary of the revenues, costs and expenses of a company during an accounting period; also called income statement, operating statement, statement of profit and loss, income and expense statement.

The amount of the reserve account that is remitted to the client upon payment of an invoice.

A remedy which may be granted by a court of law in an appropriate case, whereby a person is appointed as a receiver to possess, manage and protect money or property until the litigation involving the property is concluded.

A review of financing statements or liens on file with the Secretary of State and/or the County Clerk; discloses any existing pledge of a business's invoices, inventory or machinery and equipment.

The account set up to track funds owed to the client from the collection of factored invoices. The reserve account balance can be calculated by taking the invoice face value and subtracting the initial advance, the factor's earned fees, and any charge backs and administrative charges.

A right which exists between two parties, each of whom owes an amount to the other under a separate contract, to set-off (reduce) one party's debt by deducting therefrom the amount owed to that party by the other party.

A document that is provided to the factor by the client which lists the following information: the date of the client's invoice, account number assigned to the customer by the client, name of the customer to whom the invoice will be sent, invoice number assigned by the client to the customer, amount due for the goods provided to the client, name of the factor, legal name of the client submitting the invoices, total face amount of all the invoices submitted to the factor, and the signature of the person authorized to sign on behalf of and bind the client.

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 (UCC-1's) which are then placed on record with the Secretary of State and/or with the County Recording Office where the property is located.

An agreement established between the client and his customer, whereby in certain circumstances the customer may be entitled to deduct a portion of the amount otherwise owed to the client; in which case the factor may have advanced sums against an invoice which it is unable to recover directly from the customer.

The period of duration of an invoice, acceptance, time draft, bill of exchange, or bond; synonymous with tenor and usance. The time allowed for the payment of bills.

A deduction from the list price of goods allowed by a seller in return for payment within a specified time; for example, 2 percent 10 / net 30-day terms allows a 2 percent discount from the list price if paid within 10 days.

A document which is placed on record with the Secretary of State or with the County Recording Office. The purpose of filing this document is to evidence the funding sources security interest in the client's personal property. This document is filed in the state or county in which the client's business is located.

A document commonly used in the State of California which also is filed with the Secretary of State. The State of California does not have a UCC-3 document; they call it a UCC-2.

A document which is placed on record with the Secretary of State or with th County Recording Office to evidence a change in status for a UCC-1. With respect to a cash flow, a UCC-3 (or UCC-2) may be used to evidence assignment or termination of a UCC-1 or to make another applicable change.

A federal code recognized by more than 40 states which regulates the transfer of commercial property. The UCC took the place of various state statutes covering chattel mortgages, conditional sales, trust recipients, etc.

A procedure used to confirm the validity of assigned invoices; the factor checks directly with the client's customers to verify accounts as due and payable.