Glossary of Terms

A monthly accounting statement of the client’s daily transactions.

Money owed to clients from their customers for merchandise purchased. (When the client is factored, money is owed to the factor.

The process the factoring company uses to determine eligibility of the receivables when the factor contacts customers.

An agreement which allows the client to draw funds prior to collections of the receivables.

An additional reduction (over and above the discount) which is available to customers who pay their bills prior to the original due date of the invoice.

Invoices to a customer for which the factor has assumed the credit risk.

The date on which an entire month’s sales are payable to the client (taking into account dollar amount, date of invoices and terms of sale).

When goods are billed/invoiced to the customer, but not shipped. The goods should be segregated in the client’s warehouse and the client’s inventory accounting should reflect a reduction of that amount.
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This is the process of modifying the terms of sale which appeared on the original invoice. This is usually done at the customer’s request (i.e. extending terms) or to correct an original entry error.

Invoices and/or deductions which are not collected and are debited to the client’s account current.

A company that has contracted with the factoring company.

Merchandise shipped by a client to a customer on credit after the factor has rejected or declined to assume the credit risk. The client is then responsible for any losses if the customer is financially unable to pay the invoice.

Property left with a creditor to insure that a borrower will repay the loan (i.e. accounts receivable, equipment, fixed assets).

Client receives payment on earlier of:
– Payment by customer
– Bankruptcy or insolvency of customer
– Stipulated number of days after maturity if non-payment is due to financial inability to make payment.

Extra days added to the due date of the invoice to allow for mail time and check clearing days.

Any one account representing a very large percentage (i.e. 50% or more) of the total outstanding Accounts Receivable.

An offset or deduction a customer will take on the original invoice amount when payment is made because the client owes the customer money.

A company that purchases goods, adds value to the goods and then sells the goods for a profit.

A credit to a customer’s account. A credit memo is usually sent to a customer to correct or remove an item erroneously charged to its account or to replace lost, returned or damaged merchandise

Retailers, wholesalers and manufacturers to whom the factoring client sells its goods.

Funds deducted by the customer when paying a client’s invoice (other than discount and anticipation).

Comprised of discounts, chargebacks, credit memos and deductions.

A reduction in the selling price of the merchandise as indicated by the “terms of sale”. There are two types:
– A cash discount is an incentive for quicker payment. It is a deduction for paying within a stated shorter period of time.
– A trade discount is not a reduction for early payment. Rather it is a deduction which the customer takes because the discount offered is customary in a particular industry or the customer purchased merchandise in large quantities.

Notice to client from the factor stating a customer has refused payment on an invoice. Typical customer claims are that the merchandise was never received or merchandise was received damaged. A dispute must be resolved between the client and its customer.

An audit done by the factoring company on a client to verify the client’s financials and business processes.

The purchase of accounts receivable without recourse while assuming the responsibility for the customers’ financial ability to pay.

A legal instrument issued by a factor to another lender guaranteeing payment of its client’s indebtedness to that lender. Often, the lender is another factor and/or a piece good supplier of the client.

To provide security for financial reimbursement in case of a loss incurred.
Ineligibles
Items the factor will not lend against.
– Example of Accounts Receivable ineligibles – past dues, concentrations,

A list of goods or property on hand. For manufactures inventory is usually tracked at three levels:
– Piece Goods or Raw Material – goods which are to be used in manufacture, but which are still in a natural or unmanufactured state.
– Work In Process – products or material on which some work or processing has been done, but which are not yet completely manufactured/processed.
– Finished Goods – manufactured items that are ready for sale.

A document listing merchandise shipped, the ship to name and address, the bill to name and address, the cost and terms of sale.

A company that buys seconds (damaged goods or over runs) from a manufacturer/wholesaler and sells the goods for a profit.

The London Inter-Bank Offered Rate is the average interest rate charged when banks in the London interbank market borrow money from each other.

Invoices that are assigned by the client to the factor prior to goods being shipped.

Invoices billed to the customer prior to shipment taking place.

The prime rate, as reported by The Wall Street Journal’s bank survey, is among the most widely used benchmark in setting home equity lines of credit and credit card rates. It is in turn based on the federal funds rate, which is set by the Federal Reserve.

A signed shipping document verifying receipt of merchandise by the customer.

A pre-set quantity of goods authorized for import into a country, during a specified period, beyond which no additional quantity of these goods can be imported.

The factor assumes no responsibility and invoices can be charged back at any time.

The time given a customer to pay a client’s invoice. The terms of sale also identifies any discounts offered.

Distributes goods in their original purchase state, in quantity, to manufacturers, processors or retailers.

The factor bears full responsibility for credit approval base solely on the debtors financial ability to pay invoice on maturity.