Glossary of Terms

We like to make doing business with us easy and have avoided the use of finance jargon across our website. However, there may be times when speaking to factoring and invoice discounting providers that you will come across these terms. Our glossary is here to help.

	Term	Description
A	Advance (see also Initial Payment)	This is the amount of money that an invoice finance provider will advance to you following receipt of your invoices and is expressed as a percentage. E.g. 85% of the invoice value will be advanced to you.
	Approved debts	The invoices that a factoring and invoice discounting provider is willing to lend against. This will exclude things such as disputed debts, retail sales and customers with a ban of assignment clause in their terms of sale.
	Asset based lending	(ABL) A finance facility that provides funding against a range of business assets including debtors, stock, plant and machinery, land and buildings.
	Assignment	The legal process whereby the factoring or invoice discounting company gains ownership of the money due from a client’s invoice.
	Audit	A review carried out by the funder to ensure that the conditions of your agreement are being met.
	Availability	This relates to the amount of funding that you have available to use at a point in time from your current invoices. Once you request money the funder will forward it to you.
B	Bad debt protection	Some factoring and invoice discounting providers will offer bad debt protection as part of the package (known as "non-recourse factoring"). So if one of your customers fails to pay an undisputed debt or becomes insolvent, the finance provider will credit you with the amount of the debt up to the agreed credit limit.
	Ban of assignment	Where a debtor (your customer) refuses to allow a client to assign an invoice to a factoring or invoice discounting provider.
	Blanket cover	A minimum credit limit that will apply to all your customers, subject to no adverse credit information being received.
C	Collections	These are the payments received from your customers/debtors.
	Concentration	The level, often expressed as a percentage, to which the invoice financier will fund on one single customer of your total approved debt.
	Contra	A contra is where two companies are both suppliers and customers of each other.
	Cover limit	The amount of bad debt protection provided against each of your individual customers.
	Credit limits	The funding limit that a funder will place on each of your customers e.g. £2k. They will therefore fund any invoices sent to them up to a maximum of £2k.
	Current account	The total amount of funds paid to you including any charges at any given time.
D	Disapproval	Is a collective term covering any reason why an invoice has not been funded, for example this could be due to the age of the invoice, credit limits, contras, disputes etc.
	Disbursement:	A charge made for any service provided which is not covered by the service or discount charges. Examples include charges for same day transfers, solicitor letters etc.
	Discount rate	The interest or discount rate works in a similar way to an interest calculation and is based on the funds you use. This charge is calculated at an agreed margin and typically ranges between 1.5% and 3% over bank base rate.
	Dispute	If a customer refuses to pay an invoice it will be classed as a dispute.
E	Export debt	The amount of money owing to you from an overseas customer.
F	Funding limit	This is your borrowing limit agreed at the outset of the agreement. This can be changed during the course of the relationship.
	Funding period	This is a limit on the period of time that an invoice will be funded before getting disapproved. This typically varies between 90 and 120 days. Once the invoice has been outstanding beyond this period then the debt will become disapproved.
H	High involvement/concentration	Sometimes one customer accounts for a high percentage of a sales ledger. This customer is then said to be highly concentrated, and can lead to restricted funding depending on their creditworthiness.
I	Invoice discounting	A funding only facility which provides a cash advance against unpaid sales invoices. Credit management remains the responsibility of the business. This service is usually confidential in nature.
	Initial percentage (IP) (see also Advance)	The amount advanced against each invoice, expressed as a percentage.
N	Non-recourse factoring	Bad-debt protection (credit insurance) is included within the factoring or invoice discounting agreement, protecting clients from bad debts.
P	Pre payment	Please refer to Advance/Initial Payment.
R	Reassignment	If a debt becomes uncollectable for whatever reason e.g. a debtor goes into liquidation, then the debt can be reassigned to you. This means that the debt belongs to you and not the funder.
	Recourse factoring	A funding and collections package which releases cash tied up in outstanding invoices and includes sales ledger management.
S	Sales ledger	A record of all monies due and received from your customers.
	Schedules	A listing of all the invoices that are being sent to the finance provider at any one time showing the customer name, code, amount and date etc.
	Service charge	The service charge, administration charge or credit management fee as it sometimes called will usually be a percentage of the value of the invoices that are funded. This is an ongoing fee and in the case of factoring provides you with the funding facility and a credit management service. In the case of invoice discounting this provides the finance facility and the cost of the monitoring/auditing. There is normally a minimum service charge quoted which is either charged monthly, quarterly or annually and is calculated on turnover. This is the minimum income the invoice financier would expect from the facility and serves to protect them in the event that their client’s turnover falls short of the expected financial projections. Typical factoring fees range from 0.75% to 2.5% of total turnover whereas invoice discounting fees range from 0.2% to 0.5% of turnover. Although they are significantly less it should be remembered that only finance is being provided no credit management.
T	Trade finance	Finance to help purchase goods from suppliers. Once a confirmed order from a creditworthy buyer exists, the trade finance company funds the required purchase from the supplier.
V	Verification	Credit controllers will regularly contact your customers on a random basis to ensure goods and services have been delivered and performed to your customer’s satisfaction.