Factoring Glossary
A/R Aging Schedule – A list of a company’s accounts receivable organized in order by the age of each account.
Account Debtor – The business or individual legally obligated to pay for goods or services rendered, and is usually the party being billed on an invoice by the seller.
Accounts Receivable – Money due from buyers to a seller who have purchased goods or services from the seller on credit in the normal course of business.
Accounts Receivable Financing – A type of loan where the collateral for the loan is a company’s accounts receivable.
ACH (Direct Deposit) Transfer – ACH or “Automated Clearing House” transfers, which are also often referred to as direct deposit transfers, are money transfers from one party to another using an electronic network to facilitate the funds transfer. Most ACH transfers are used for payroll, vendor payments, and other miscellaneous direct deposit payments.
Acid-test Ratio – A liquidity ratio that measures a company’s ability to pay its current liabilities when they come due with current assets that can be converted into cash generally within 90 days.
Balance Sheet – A financial statement that summarizes the assets, liabilities, and capital of a business or other organization at a particular point in time.
Bankruptcy – A term used to describe a federal court procedure that helps consumers and businesses to seek relief from their creditors and to eliminate their debts.
Bill of Lading (BOL) – A legal document between the shipper of goods and the carrier of the goods that details the type, quantity, and destination of the goods. A BOL also serves as a receipt of shipment to the person consigning the goods.
Buy Back Period – The defined period of time in a recourse factoring agreement when the seller of an account must repurchase the account from the factor if the account debtor has not made payment.
Capital Structure – A term used to describe how a company uses debt and equity to finance its overall business operations.
Carrier – A person or business, such as a trucking company, that transports goods as a service.
Cash Cycle – The flow of cash that begins when payment is made for raw materials and ends with receiving cash for goods sold.
Collection Policy – Instructions and procedures used by a company in collecting accounts receivable.
Consignee – In transportation documents, the consignee is the entity who goods have been consigned to and is financially responsible (the buyer) for the receipt of a shipment. Generally, but not always, the consignee is the same as the receiver.
Consignor – Person or business (usually the seller) who delivers a consignment to a carrier for transporting it to a consignee (usually the buyer) named in the transportation documents.
Credit Score – A score derived by a credit agency that attempts to quantify a consumer’s probability of default when the consumer is extended credit.
Current Assets – Cash and other assets that are expected to be converted to cash within a year.
Current Liabilities – Amounts due to be paid to creditors within twelve months.
Current Ratio – A liquidity ratio that measures a company’s ability to pay short-term and long-term obligations by comparing the current assets of a company relative to that company’s current liabilities.
Debt-to-equity Ratio – A debt ratio used to measure a company’s financial leverage. It is calculated by dividing a company’s total liabilities by its stockholders’ equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity.
Discount Rate – The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve. The discount rate also refers to the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.
Equity or Owners’ Equity – The amount of money contributed by the owners of a company plus the retained earnings. The owner’s equity is accounted for on a company’s balance sheet.
Factor – A person or business that buys accounts receivable from individuals or businesses at a discounted rate.
Factoring Fee – The fee charged by a factor when purchasing an account receivable. The factoring fee is usually stated as a percentage that is deducted from the face value of the account being purchased.
Factoring Receivables – The act of a person or business selling their accounts receivable to a factor to accelerate their cash flow.
Financial Leverage – The measure of the amount of debt that a business uses to buy assets.
Fixed Costs – Costs to a business that don’t change regardless of the quantity of goods or services produced or sold.
Freight Broker – An independent, third party individual or business that helps facilitate the shipment of goods by acting as a middle man between a shipper and carrier.
Fuel Advance – A short-term loan extended to a trucking company to pay for the cost of fuel to transport a shipment to its intended destination.
Income Statement – A financial statement that reports a company’s financial performance over a specific accounting period by reporting the company’s revenue, expenses and net profit or loss.
Incremental Cash Flow – The amount of additional operating cash flow a business generates by taking on new business.
Interest – A fee paid for the privilege of using another person’s money. It is usually expressed as an annual percentage rate of the amount borrowed.
Invoice – A bill for goods and/or services provided by the seller to the purchaser.
Invoice Verification – The process of confirming the accuracy of the amount and parties to an invoice.
LIBOR Rate – The LIBOR or “London Interbank Offer Rate” is the rate most international banks charge one another for overnight loans denominated in Euros.
Liquidity – A term used to describe the degree to which an asset can be quickly sold in the market without affecting the asset’s price.
Load Confirmation – A document between a freight broker and a carrier that details the items being shipped, the destination, the consignor and consignee, any special instructions for the shipment, and the rate being paid to the carrier for transporting the goods.
Long-term Debt – Loans and financial obligations that will last more than one year.
Maintenance – Activities required or undertaken to conserve as long as possible the original condition of an asset or resource while compensating for normal wear and tear.
Non-recourse Factoring – A type of factoring transaction where the factor assumes the risk of being paid by the debtor. If the factor does not collect payment from the account debtor, the seller of the account receivable is not liable to the factor for payment of the account.
Operating Cash Flow – Cash flow provided to a business by its normal business operations.
Opportunity Cost – The loss of potential profit or gain from choosing one investment option over other alternative options.
Prime Rate – The rate used by banks when lending money to their most credit worthy customers. The prime interest rate is largely based on a set factor above the federal funds rate, which has historically been 300 basis points. The prime rate is sometimes also referred to as the prime lending rate.
Pro Forma Financial Statements – Financial statements that project a company’s future operating results based on certain assumptions.
Quick Assets – Assets that can be converted to cash quickly.
Rate Confirmation – A document between a shipper or freight broker and a carrier that details the rate being paid to transport a shipment of goods. See also Load Confirmation.
Recourse Factoring – A type of factoring transaction where the seller of an account remains liable to the factor who purchased the account for payment if the account is not collected within a defined period of time.
Revenues – The amount of money a business receives for selling goods or services. Revenues are usually tracked for specific periods of time and are the “top line” number in determining a company’s net income or loss.
Shipper – The consignor, exporter, or seller (who may be the same or different parties) named in shipping documents as the party responsible for initiating a shipment, and who may also bear the freight cost.
Spot Factoring – A factoring transaction where a business sells an individual invoice to a factor. It is also often referred to as single invoice factoring.
Statement of Cash Flows – A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents and reflects the changes in cash flow to operating, investing and financing activities.
Uniform Commercial Code (UCC) – The set of laws governing commercial transactions in the United States.
Variable Costs – Costs to a business that vary with changes in the quantity of goods or services produced or sold.
Wire Transfer – A method of transferring money from one party to another, usually on the same day, that is facilitated by financial institutions and the US Federal Reserve.
Working Capital – The capital of a business that is used in its day-to-day operations and is calculated as the current assets minus the current liabilities. Working capital is a measure of both a company’s efficiency and its short-term financial health.