Account Debtor
The customer of a factor's client. The company owing the money due on the invoices. Also known as the customer.

Accounts Receivable
Trade credits; an amount owed by an account debtor by the act of granting short term unsecured credit in lieu of cash for goods or services. Considered a liquid asset on the balance sheet and generally expected to be paid in less than ninety days.

Accounts Receivable Financing
A short-term financing technique for working capital purposes, loans to a company are collateralized by a security interest in a company's account receivables. Account receivables serve as collateral, and loans are made on a percentage of eligible assets pledged.

Acquisition
A loan to assist in acquiring the assets of a business.

Asset Based
A business loan where the borrower pledges as collateral for the loan any assets used in the conduct of his or her business. Funds are used for business related expenses. All asset-based loans are secured.

Dilution
The amount of risk associated with collection of the accounts receivable. It can include returns, charge-backs, trade allowances, concentrations, slow pay, bad debt and other perceived risk.

Discount factoring:
The factor purchases the receivables at a discount to compensate for paying prior to the due date.

Due Diligence
Background check and research conducted by the factor to assess validity of a prospective factoring client and that client's customers.

Factor
The funding source for the client. The company which purchases the accounts receivable (invoices) from the client.

Factoring
The selling of a company's accounts receivable to a third party, in order to obtain funding.

Factors Acknowledgment Form
A form sent to the client's customer by the factor, confirming that the client's invoice does exist and that the customer will remit the payment due under that invoice to the factor.

Factors Advance
The money the factor sends to the client up front, after the verification process is complete, and before the factor receives its money from the client's customer. The advance is figured as a percentage of the face value of the factored invoices.

Factors Charge-Back
An amount of money that is owed to the factor and is deducted or Charged-Back from the reserve or availability of the line due to an agreed upon non-payment by debtor clause in the Factors contract.

Factors Client
The business which sells its accounts receivable to the factor.

Factors Fee
The fee the Factor Charges for funding the clients A/R.

Factors Reserve
A deposit maintained by the factor, to guard against disputes between the client and the customer, and to guard against bad debt losses due to customer non-payment. This is the money retained by the factor when the advance is sent to the client. The Reserve is sent to the client after the customer has paid the factor the money due on the invoice.

Factors Reserve Release
The amount of money released from the Factors Reserve once payment has been received and credited. The Reserve Release may be less any charge-back or fees associated with the services.

Factors Services
Credit Analysis, Credit Guarantees and Collection Management.

Factors Verification
Process by which the factor verifies that the product or service provided by the client was received and accepted by the customer, and that the customer intends to pay the factor the money due under the invoice. This process takes place before the factor sends the advance to the client.

Floor plan financing:
Certain industries require significant high-priced finished goods inventory. Examples: automobiles, refrigerators, washing machines, televisions and stereo systems. These are supplied on extended credit terms to retailers. Retailers usually do not purchase this expensive inventory outright; rather a finance company will provide credit to purchase the inventory, secured by the product "on the floor".

Full-recourse financing:
The financing institution accepts assignment of the receivable but does not assume the credit risk. The client retains responsibility for managing the receivable portfolio. Generally, the lender will finance invoices up to ninety days from delivery of goods or services, then charge them back to the client.

Leasing:
The lessor purchases the equipment needed to fulfill certain obligations and the equipment remains the property of the lessor even after all the borrowed funds are repaid; or existing assets are sold to and leased from a leasing company to release capital needed for working capital purposes.

Maturity factoring:
The factor purchases the receivables, assumes the credit risk and advances cash to the client as the invoices mature.

Non-notification factoring:
Account debtors are not notified of the sale of the receivables and the invoices are either paid to a lock-box or to the shipper. This is similar to a receivable loan.

Non-recourse factoring:
The financing institution buys the receivable and assumes the risk of customer credit. The factor guarantees against credit loss, unlike a secured lending facility. The factor will also check credit, undertake collection and manage bookkeeping functions.

Notification factoring:
Account debtors are notified of the purchase of the receivables and are directed to make payments to the factor.

Purchase order financing:
Working capital financing is secured by a security interest in existing purchase orders and the proceeds of the purchase orders. Normally the security interest is perfected by the lender taking possession of the inventory or raw materials.

Real estate financing:
the mortgaging of land and/or buildings to raise working capital.

Secured lending:
The lender provides funds secured by the assets of the borrower. The collateral can include: accounts receivable, inventory, machinery, real estate, patents, trademarks or other assets where value can be determined.

The secured lender may establish a revolving loan where the borrower provides a pool of collateral that the lender translates into operating cash or working capital. The borrower uses the financing to buy more materials, expand marketing, improve productivity or other improvements and sells the resultant product. The sales create receivables that are pledged for cash advances and the payments received on the invoices pay down the loan. These increases and reductions in the loan balance are cyclical, hence the revolving nature of the loan.

Some receivables have less collateral value, for example, progress billing, past due receivables, and receivables subject to "set-off". Raw materials and finished goods are normally acceptable collateral, but work-in-progress generally is not. Equipment and real estate may also be used as a source of financing.

Spot factoring:
A "one shot" transaction, generally out of the normal course of business. (for more about factoring, click Here)

Working Capital
Loans for business expenses such as, advertising, wages, rents, and other operational costs. Often these loans are secured by tangible assets or, in the case of long-standing good credit, by the "full faith and credit" of the company.