Account A collection of claims or invoices against a particular customer for goods or services delivered. Account Debtor The person, business or organization responsible for paying an invoice.  In the case of factoring, the account debtor is the customer whose name is on the invoice sold to the factor. Accounts Payable The amount owed by a business to its suppliers or vendors. Accounts Receivables A commercial debt due for repayment usually in 30 - 90 days.  In the factoring industry the accounts receivable is what a company sells to a factor. Accounts Receivable Aging Report A business report showing how long accounts receivable from each customer have been outstanding.  It indicates the receivables that are current and the amounts outstanding for 30 days, 60 days and so forth. Accounts Receivable Financing A form of financing which uses accounts receivable as collateral for a loan.  This is different than factoring in that the party providing the financing does not own the invoice and is not responsible for collecting the debt. Accrual Accounting An accounting method whereby income and expense items are recognized as they are earned or incurred even though they may not have been received or actually paid in cash.  The opposite of cash basis accounting. Acknowledgment Form Form sent to the client's customer account debtors to confirm that the invoice the client is selling does exist and that they will remit payment directly to factor. Advance The percentage of an invoice's face value that a factor pays upon its purchase. Assets Items which hold commercial or exchange value. Asset-Based Lending A form of lending where the lender uses collateral, such as A/R, equipment or inventory, as security against the loan. Assignee The person or business entity that is given, obtains or buys the rights to an asset. Assignment A transfer of ownership or interest in a payment obligation between two or more parties. Assignment of Collateral The legal term used when accounts receivable are pledged to a lender as collateral for a loan. Assignor The person giving or selling an asset, subsequently forfeiting rights to that asset. Authorized Signatory An individual who is authorized to execute a binding document on behalf of a corporation, partnership or other legal entity. Balance Sheet A report that accounts for the assets, liabilities and owner's equity of a business on a specific date. Bankruptcy A state of insolvency created by the inability of a person or business to pay debts. Bill of Lading A shipping document providing instructions to the freight forwarder or shipper.   This instrument also indicates who the seller and the buyer are. Bill of Sale A document used to transfer title of goods from the seller to the buyer. Blanket Assignment A legal transfer of ownership of all accounts receivable, both present and future as collateral for funding. Borrowing Power The maximum loan available to a borrower at a particular time based on the calculated value of the accounts receivable;  the product of a borrower's advance rate times eligible accounts receivable. Break-Even Point The degree of operation where costs equal revenue. Capital The net worth (assets - liabilities + net worth) of a business;  wealth used in trade.   Monies left over after a business or individual has satisfied all debt. Cash Accounting A method that recognizes revenues when cash is received and recognizes expenses when cash is paid out.  Cash basis accounting is the opposite of accrual basis accounting. Cash Flow An analysis over a period of time revealing the availability, or lack, of cash.  More simply put, the difference between cash in (income) vs. cash out (expenses). Since money does not flow in and out at an equal rate, in most businesses, an analysis of cash flow is important, especially of businesses that are cyclical in nature, or subject to external forces. Client The individual or company that sells its accounts receivables to a factor or other financial entities. Collateral An asset that is promised or given to a creditor (a factor or a financial institution) to guarantee the discharge of an obligation by the debtor.  Upon default, the creditor may seize the asset and sell it to pay off the loan. Commercial Credit Insurance Insurance against losses from the ultimate inability to collect accounts receivable. Concentration The amount of one client's accounts receivable due from a single customer.  A large concentration for a single customer is considered high risk. Corporation A legal entity which can own property, incur debts, sue, and be sued.   Corporations provide for limited liability, easy transfer of ownership and continuity of existence. Corporate Resolution An action taken by the vote of a corporation. Covenant A rule, a law;  a restriction prohibiting an individual or a company from performing unauthorized acts. Cost of Good Sold The cost of all of the materials needed to make the client's product. Credit Analysis An analysis of records and financial affairs to determine the creditworthiness of a business. Credit Guaranty A form of guarantying a debt from the debtor in the event of debtor insolvency. Creditor The party to whom money is owed. Current Ratio The number of times current assets cover current liabilities;  ability to meet obligations due. Customer The business or organization that owes money on an invoice purchased by the factor; i.e. the client's customers, also known as account debtors. DBA: Doing Business As Used to designate the name of a business as it is commonly known rather than its legal name, the name of the owner, etc. DBT An abbreviation for "days beyond terms," which indicates how many days past the due date an invoice is late. Debt Instrument The evidence of monies owed. Debtor A person or party which owes payment to a creditor. Default The omission or failure to perform or fulfill a legal duty, obligation or promise. Delivery Evidence A document that proves delivery of a shipment. DIP (Debtor-In-Possession) Financing Financing provided to a company while under Chapter 11 Bankruptcy/Reorganization protection. Disclosure To tell a lender or investor anything that may be relevant and of material nature to the deal. Discount Factoring Arrangement whereby a factor purchases an account(s) receivable from a business (client) at a discount to the face value of that receivable.  The factor earns a fee based on the number of days that the receivable remains unpaid, i.e., the longer the receivable remains unpaid, the larger the fee incurred. Discount Fee The amount earned by a factor on each invoice purchased.  It is based on the period of time the invoice remains outstanding (unpaid) and is set forth and agreed upon by both parties in the Discount Schedule. Discount Rate The percentage of the face value of an invoice that a factor holds as its fee. Due Diligence The Credit Analysis process used to facilitate a decision as to whether or not to accept a prospective client. Encumbrances A lien or any form of indebtedness owed against real or personal property.  An encumbrance is also recognized as unearned equity. Escrow The system by which money, documents, personal property or real property are held in trust for others by a disinterested third party until the terms and conditions of the escrow instructions made by the parties to the escrow are completed or otherwise terminated. Face Amount or Face Value The total dollar amount of an invoice.  This is the amount that has to be paid to the factor by client's customer, without consideration as to how much was advanced to the client. Factor As a verb, to factor is the act of buying or selling accounts receivable at a discount.  As a noun, a factor is a company engaged in the buying of accounts receivable. Factoring Factoring is the process of purchasing commercial accounts receivable (invoices) from a business at a discount. Federal Employee ID Number A government-issued identification number used to identify businesses.  This number is similar to the Social Security number but is used to identify businesses, not individuals. Fictitious Name Statement A legal filing used by a person to record a name for a proprietorship. Fixed Cost or Expenses Overhead; those expenses that won't change, regardless of sales. Fraud Criminal deception.  Most commonly perpetrated by clients that sell invoices to a factor with the knowledge that the debtor is not legally obligated to pay the invoice. Freedom The absence of necessity or constraint;  independence;  ease;  facility.  See Amerisource. Full Recourse Agreement A type of factoring wherein if the invoice is not collected due to the financial inability of the customer, the client assumes the loss. Funding Advancing money (based on the advance rate) to a client. Guaranteed Sales Sales that allow the return of merchandise purchased at the customer's discretion. Indemnification A promise to compensate for loss or damage sustained as a result of a stated set of circumstances. Insolvency The inability to pay one’s debts when due. Interest The rate paid on money that is borrowed or advanced, usually stated as a percentage rate per year. Invoice A legal debt instrument which indicates the amount due from a customer to pay for delivered goods or services.  Invoices may be traded or sold. Liabilities The amount owed by a business or an individual, excluding ownership equity.   There are two types of liabilities: Current and Long-term.  Current are debts that must be paid within one year (such as accounts payable, dividends, notes payable, bank loans payable, taxes payable, wages and any portion of long-term debt that is due within one year).  Long-term liabilities, also called funded debt, are debts that are not due until after a year's time. Lien A creditor's claim against property.  When the debt is paid, the lien is removed. Liens may also be granted by courts to satisfy judgments. Lien Search A search through public records on file in both the County Clerk's and Secretary of State's offices for any claims (pledges) against the property of a business (such as their accounts receivable) or an individual.  An example would be if a taxing authority has a lien against the accounts receivable of a business due to taxes owed. Line of Credit The amount of credit that may be extended to a borrower by a lender.  This type of arrangement gives a borrower flexibility in planning for operating expenses. Liquidity The ability to convert assets into cash (or cash equivalent) without significant loss.  If a business has good liquidity, they will be able to meet their maturing obligations promptly, earn trade discounts, benefit from a good credit rating, etc. Maturity Factoring A type of non-recourse factoring.  The factor takes an assignment of all of the client's book debts and administers the client's sales ledger.  When monies are collected, they are sent to the client, less the factor's fee.  Maturity factoring is useful to companies with extensive and complicated sales ledgers.  By factoring all of their invoices in this manner, these companies receive better management of their accounts receivable by the factor than they could provide for themselves. Mechanic's Lien A lien on property (such as a building or an invoice) given by statute to a worker or contractor who performs work or furnishes materials for the improvement of that property, until compensation is made for the improvement.  Until that lien is satisfied, it usually takes precedence over all other liens. Negative Cash Flow A situation where income is less than expenses.  Prolonged negative cash flow can lead to the failure of a business. Note A written promise to pay a named amount to a particular company or person by a certain date. Notification Process whereby the factor lets an account debtor (client's customer) know that an invoice(s) has been purchased from client, and that the debtor is to pay the factor directly. Non-Notification An aspect of confidential factoring where the customers are not notified of the client's arrangement with the factor. Non-Recourse A type of factoring where the factor assumes complete responsibility for collection of debt.  If the debt is not collected due to the financial inability of the customer, the factor assumes the loss. Overhead The cost of doing business unrelated to production or sale of goods or services. Office rent, for instance, is an overhead expense.  It remains unchanged no matter how much a company sells. Partnership A contract between two or more people in a joint business venture who agree to pool their funds and/or talents and share in the profits and losses of the enterprise. General partners are those who are responsible for the day-to-day management of activities, whose individual acts are binding on all the partners, and who are personally responsible for the partnership's total liabilities.  Limited partners are those who contribute only money and are not involved in management decisions and whose liability is limited to the amount of their investment. Payee The person scheduled to receive compensation under the terms of a contract. Payor The person scheduled to make compensation under the terms of the contract. Personal Guarantee An agreement in which a principal of a corporation assumes personal liability for the obligations of the corporation. Personal Property Any property which is not designated real property by law. Portfolio A group or package of investments of the same type. Power of Attorney A written document by which one person, the principal, appoints another person as agent or attorney-in-fact, giving that person the authority to act on the principal's behalf to perform certain acts or duties specified in the document.   The document itself serves as evidence to third parties of the agent's authority to act on behalf of the principal. Prepayment Penalty A penalty for the payment of a debt before it becomes due. Pre-ship Invoice A legal debt instrument which indicates the amount due from a customer to pay for goods or services which have NOT yet been delivered.  Generally, factors will not purchase pre-ship invoices. Profit & Loss Statement (P&L) An accounting summary of revenues and expenses of a business during a specific period.  This may also be known as an operating statement, income and expense statement or income statement. Proprietorship Unincorporated business owned by a single person.  The individual proprietor has the right to all the profits from the business and also has responsibility for all of the firm's liabilities. Purchase Order A document or form used by a customer to issue an order for goods or services. Purchase Price Sometimes referred to as the advance on the prepayment.  This is the amount of money that is paid to the client by the factor for an invoice in advance of the factor receiving payment from the client's customer. Quantity Discounts Price reductions from vendors experienced as a result of purchasing in larger volume. Quick Ratio Current assets divided by current liabilities.  One measurement of a firm's liquidity. Real Property Real estate collateral that can only be perfected by a note and a Deed of Trust. Rebate The return of funds issued to the client by a factor from the reserve account. Receivership A remedy which may be granted by a court of law in an appropriate case, whereby a person is appointed as a receiver to possess, manage and protect money or property until the litigation involving the property is concluded. Recording The placing on the public records of the county in which the property is located any instrument that affects the title of that property. Records Search A review of financing statements or liens on file with the Secretary of State and/or the County Clerk; discloses any existing pledge of a business accounts receivable, inventory or machinery and equipment.  Similar to Lien Search. Recourse A form of factoring where the client is liable for payment in the event the customer does not pay. Reserve Account An account established by the factor representing the portion of the face value not advanced to the client.  The account amount equals the invoice face value minus the advance, the factor's fees, charge backs and administrative charges. Risk-Sharing Factoring A hybrid form of factoring which combines non-recourse and recourse factoring. Schedule of Accounts A Bill of Sale generated by the factor's client which lists all of the accounts (invoices) the client wants to sell to the factor at that time. Seasoned Seasoning relates to the length of time payments have been made on an income stream.  An income stream is seasoned if many payments have been received in a timely manner.  Buyers will have their own ideas as to how many payments make for a seasoned income stream, but a year's worth is fairly well-seasoned.  In that time, the payor will have established his/her financial ability to make the payments on a consistent basis. Security Property given or pledged to ensure the repayment of a debt by a borrower. Security Interest An interest in property, other than real estate, which is given as security for a debt or other obligation.  A security interest is created by execution of a security agreement and one or more financing statements under the Uniform Commercial Code (UCC-1's) that are then placed on record with the Secretary of State and/or with the county recording office where the property is located. Servicing The ledgering of invoices, collection, and posting of payments.  Servicing by a lender consists of operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquent loan follow-up and loan analysis. Shareholder Owner of one or more shares of stock in a corporation and or a privately-held business. Subordinated Debt A debt that is payable only after a more senior debt has been paid. Subordination The act of a creditor acknowledging in writing that the debt due him by a debtor shall be inferior to the debt due another creditor by the same debtor. Term The period of duration of an invoice, trade acceptance, time draft, bill of exchange, bond or loan/factoring agreement.  The time allowed for payment of invoices. Term Loan A loan that is made to an individual or company over a long period of time, typically 12 months or more. Trade Discount A deduction from the list price of goods provided by a business in return for payment within a specified time frame. Trade Receivables Invoices for goods furnished or services rendered by one business to another business. UCC-1 The document filed with the Secretary of State and/or the County Clerk's office(s) to perfect a factor's lien on a client's assets (accounts receivable).  Also called "UCC Financing Statement." UCC-2 A document commonly used in the State of California.  The State of California does not have a UCC-3 document; they call it a UCC-2. UCC-3 The document that is filed with the Secretary of State and/or the County Clerk's office(s) as evidence of an assignment, change or release of the UCC-1.  In the case of factoring, a UCC-3 is filed to terminate a UCC- 1 when all outstanding invoices are paid and the relationship between the client and the factor is ended. Uniform Commercial Code The State Code which regulates the transfer of property. Unsecured Liabilities Debts that do not provide for some form of collateral, such as Accounts Payable. Verification A step during the due diligence process in which a factor confirms the validity of an invoice with the client's customer. Volume The basic measure of output generated from a particular business activity. Warranty An undertaking by the client that a condition of the Accounts Receivable is as stated or will be exactly fulfilled.