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Glossary

Select a term from the list to view its definition.

Account debtorAccount receivableAdministration charge
AdvanceAged balance reportAgeing
Agency factoringAncillary rightsApproved
Asset Based FundingAssignmentAssignment notice
AssociateAssociated rightsAvailability
Back-to-back factoringBalance paymentBatch
Bulk factoring 
ChainCharge backClient
Collection dateCollection onlyCollection report
Commission Confidential factoringConversion
Correspondent factorCredit approvalCredit limit
Credit lineCredit riskCurrent account
Current AssetsCurrent liabilitiesCustomer
Cut-off clause 
Dated InvoicesDebit backDebt
Debt turnDebtorDebts purchased accounts
Direct export factoringDirect import factoringDisapproved
Disclosed invoice discountingDisclosed invoice discountingDiscount charge
Discount tolerance letterDisputeDispute notice
Domestic factoring 
Early paymentEligible debtExport factor
Facultative agreementFixed AssetsForward dating of invoices
Full factoringFunds in use 
Import factorIndirect paymentIneligible debt
Initial advanceInterfactor agreementIntroductory letter
Invoice discounting 
Liquidity ratio 
Maturity dateMaturity factoringMaturity period
Merchant Trade FinancingMinimum balance 
Non-notification factoringNon-recourse factoringNotification
Old line factoringOpen item sales accounting 
Payment reportPermitted limitPrepayment
ReceivableRecourseRecourse factoring
Refactoring chargeRefactoring chargeRetention
Schedule of offerSellerService charge
SupplierSurveySurvey
Take onTotal funds in useTurnover
Two factor system 
UnapprovedUndisclosed factoring 
WaiverWhole turnover agreement 

Account debtor
Debtor.

Account receivable
Debt.

Administration charge
Charge made by the factor for administering the sales ledger, which may include debt collection and credit insurance. The charge is usually calculated as a percentage of the total value of invoices purchased.

Advance
Sometimes known as prepayment, a payment made by the factor to the client on purchase of debts from the client.

Aged balance report
A schedule of outstanding debts analysed by reference to their due dates.

Ageing
The analysis of outstanding debts with specific regard to their due dates.

Agency factoring
Sometimes termed Bulk factoring, a service which enables the client to retain the collection function, but which is disclosed to the debtor.

Ancillary rights
All rights over a contract of sale or service which give rise to a debt. This includes all rights to returned debts, all guarantees and all insurance related to a debt.

Approved
If used in the context of non-recourse factoring: an approved debt is one for which the factor has no recourse to the client in the event of the debtor’s inability to pay the debt. If used in the context of most forms of factoring (with the exception of maturity), an approved debt is eligible for an advance payment on account of its purchase price.

Asset Based Funding
Form of finance, primarily based on invoice discounting, but where other assets are taken into consideration, such as stock and property, to provide higher levels of advances to clients.

Assignment
An agreement by a creditor to transfer the rights of ownership of a debt to a third party

Assignment notice
A notice to the debtor of an assignment of the debt to a factor and instructing payment to be made to the factor.

Associate
An individual who is linked to the client for reasons including common control or relationship.

Associated rights
See ancillary rights.

Availability
The sum payable, at any one time, to the client by the factor for the purchase price of debts sold to the factor.

Back-to-back factoring
The provision of factoring services to a debtor in order to provide security for the approval of the debtor's indebtedness arising from the sales of another client (Salinger 1995).

Balance payment
The payment of the purchase price of a debt (purchased by the factor), after the deduction of any advance payments made towards that price, on the collection date of the debt.

Batch
A group of copy invoices which come with a notification.

Bulk factoring
Another term for Agency factoring

Chain
An international association of correspondent factors.

Charge back
A sum payable to the factor by the client for a debt which is subject to recourse.

Client
Business that has entered into a factoring arrangement with a factor.

Collection date
The date on which a factor receives payment for a debt.

Collection only
An arrangement in which the factor is required to pay the purchase price on the collection date only (i.e. with no prepayments).

Collection report
A report made by the factor to their client detailing payments received from debtors.

Commission
see Administration charge

Confidential factoring
A factoring arrangement whereby the debtors are not notified of the assignment to the factor. The client collects the debts as agent for the factor.

Conversion
US legal term: the unauthorised exercise of ownership over personal property belonging to another, resulting in exclusion of the owner's rights or in alteration of the personal property. This term can be used to describe a scenario in which a factor does not pay its client the amount that it is owed.

Correspondent factor
A factor that acts as an import factor or export factor under the two factor system.

Credit approval
Is given when the factor accepts the credit risk assumed by taking a debt from a client without recourse to that client in the event of a payment default.

Credit limit
The maximum amount of outstanding debts which a factor is prepared to approve with regard to a specific debtor.

Credit line
See credit limit

Credit risk
The risk incurred by a factor who has no recourse to their client. This risk is based on the inability of the debtor to pay their debt to the factor.

Current account
An ongoing account between the client and factor recording all of the transactions which occur between them.

Current Assets
Cash or those assets that can readily be turned into cash e.g. stock, debtors, short term investments, cash at bank.

Current liabilities
Liabilities due to be paid within one year e.g. trade creditors, loans, bank overdraft.

Customer
Customer of the factor's client i.e. the debtor

Cut-off clause
A clause within a contract of sale or service which stipulates that each invoice should be regarded as arising from a separate contract.

Dated Invoices
Invoices which have been forward dated.

Debit back
See charge back.

Debt
The total amount of a debtor’s obligations under a contract of sale or service.

Debt turn
The average credit period used by a client’s debtors.

Debtor
One who is contractually indebted to a client for the sale of goods or services.

Debts purchased accounts
An account on which a factor records the value of all the unmatured debts which they have purchased.

Direct export factoring
Export factoring without the use of a correspondent factor

Direct import factoring
Import factoring services to an exporter in another country without the use of a correspondent factor.

Disapproved
With regard to a debt, one which is not approved.

Disclosed invoice discounting
See agency factoring.

Disclosed invoice discounting
Another term for Agency factoring

Discount charge
Charge made by a factor for the provision of funds usually calculated as a percentage of the amounts advanced. This is a UK term. In other countries this charge is generally called the interest charge.

Discount tolerance letter
A letter sent to the factor by the client in which the client agrees to the limits of any settlement discount (dependent on time and amount) which the factor is prepared to allow.

Dispute
A dispute arises when a debtor refuses to accept the invoice and goods or services which relate to a debt which a factor has purchased.

Dispute notice
Written notification to the client from the factor informing the client of a dispute.

Domestic factoring
The factoring of debts by clients with debtors in the same country

Early payment
See prepayment

Eligible debt
A debt on which the client may draw a prepayment on account of the purchase price, subject to the factor’s prescription.

Export factor
A factor who provides funding for his clients exports using the two factor system

Facultative agreement
An agreement in which provision is made for each individual debt to be offered by the client to the factor who is at liberty to accept or reject the individual debts at will.

Fixed Assets
All tangible and intangible assets plus investments.

Forward dating of invoices
A mechanism which allows the client to award an extension of the credit period to the debtor. In this process the client advances the date on the invoice to one after that on which it is issued and accordingly the collection date is advanced as it is calculated from a later date.

Full factoring
The provision of factoring services whereby the factor takes on the administration functions of the sales ledger including debt collection and possibly bad debt relief.

Funds in use
The total amount of funds advanced to the client prior to collection by th factor.

Import factor
A correspondent factor, usually in the country of the debtor, who is responsible for the collection and/or credit risk by sub-assignment of the debts.

Indirect payment
A payment made to the client by a debtor

Ineligible debt
A debt with regard to which the factor is not prepared to make a prepayment on account of the purchase price.

Initial advance
The amount of funds made available to the client on receipt of invoices, expressed as a percentage of total invoice value.

Interfactor agreement
An agreement between correspondent factors whereby they mutually agree to act as import and export factors in accordance with a code of practice (Salinger, 1995)

Introductory letter
A letter sent by the client to each of their debtors.

Invoice discounting
Confidential factoring, usually with recourse, whereby the client continues to collect the debt from his customers, but on behalf of the factor.

Liquidity ratio
Ratio of current assets to current liabilities.

Maturity date
The date on which the full or balance payment of a debt purchased by a factor is due.

Maturity factoring
A type of factoring in which the payment of the purchase price of each debt is to be made on the maturity date of the debt.

Maturity period
The period of time between the issue date of an invoice (which has been purchased by a factor) and the maturity date relating to the purchased debt.

Merchant Trade Financing
Form of finance whereby the merchant trader, under an arrangement with the client, purchases goods from the client for immediate payment, and then, acting as agent, sells directly to the client’s customer.

Minimum balance
Retention

Non-notification factoring
Confidential factoring

Non-recourse factoring
Full factoring whereby the factor takes the risk of the debtor defaulting on approved debts and therefore has no right of recourse to the client in such circumstances.

Notification
The client’s notification to the factor of fresh invoices coming into existence, usually by the submission of fresh invoices. Also sometimes used to denote notification to the debtor that an assignment is in place.

Old line factoring
Full factoring

Open item sales accounting
System of accounting by which the balance owing is broken down into unpaid individual invoices.

Payment report
Report from a factor to client showing status of debtor payments.

Permitted limit
Credit limit

Prepayment
Payment by the factor to the client on purchase of debts from the factor

Receivable
Debt

Recourse
The factors right to payment of a debt, if necessary, by recourse to the client.

Recourse factoring
Whereby the factor has recourse to the client in respect of any unpaid factored invoices

Refactoring charge
Additional charge by factor when an unpaid invoice reaches a certain age

Refactoring charge
Additional administration charge made by a factor to a client when a debt remains unpaid for a specified period.

Retention
A minimum credit balance held by the factor in the client’s account.

Schedule of offer
A list of invoices offered by the client to the factor for purchase.

Seller
Client

Service charge
Administration charge

Supplier
Client

Survey
A factor inspection of a prospective client’s records and business in general for the purposes of suitability of entering into a factoring arrangement.

Survey
Survey of a prospective client's business records to assess suitability for factoring

Take on
The adoption of initial debts purchased by factor when commencing a factoring relationship.

Total funds in use
The total amount of funds owing to the factor by the client at any one time

Turnover
All income derived from administration services provided plus discount/interest charges.

Two factor system
System whereby a factor uses, by sub-assignment, a factor in another country to take on the credit risk and collect the debt of a client exporting to a customer in that country

Unapproved
Debts assigned to a factor, but where prepayment is not approved.

Undisclosed factoring
Another term for confidential factoring

Waiver
A release of debts from a charge or other encumbrance – for example, a bank overdraft.

Whole turnover agreement
An agreement for the assignment of all existing and future debts to a factor by a client.

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