+1 (201) 842 – 7725

Revenue based financing learning center

A
Asset Based Loan (ABL): It is a short-term loan that is secured by the company’s assets such as inventory, real estate, equipment or accounts receivable. Most are paid back when the asset that secures the loan is converted to cash through normal operations. (I think there are better definitions, however this is customer friendly)
Account Debtor: Please see customer.
Accounts Receivable: Money that is owed to you by your customers, usually by issuing an invoice that is due to be paid within a certain period of time. A/R appears in the balance sheet as an asset since it’s considered to be near cash (i.e. due in 90 days or less).
Accounts Payable: Invoices and payment owed by a business to their suppliers
Accounts Receivable Factoring: Another term for factoring. See factoring.
ACH (Automated Clearing House): Payments made through bank account withdrawals or deposits using the ACH system
Annual Fees: Yearly fees paid to a lender as costs for maintenance of the loan or line of credit
Articles of Incorporation: a public record that establishes the creation of a business
Advance: This is the amount of money that the factoring company advances to your company when they buy the invoice. The advance is often a percentage of the gross value of the invoice and is wired shortly after the invoice is purchased.
Advance rate: The percentage of the invoice that will be advanced.  On average, most factors advance between 70% and 90% of the gross value of the invoice.
Audit: A review carried out by to ensure that the conditions of the factoring agreement are being met.
Authorized Signatory: The person with permission to sign for a legal document on behalf of the company
B
Bad Debt: Bad debt is debt that has a minimal or limited chance of being collected. Bad debt is often written off or sold to a collections agency.
Bill of Lading: Legal document with the terms and goods of a shipment by a carrier
Buyout: Process of switching factoring companies when under contract. The new factor will buy out the remainder of your contract with your existing factor (I would define it as the following – The process of paying off an existing capital partner)
C
Client: A factoring client who sells their invoices to the factor. Not to be confused with the term customer.
Collections: Payments that the factor receives for invoices that were factored or by invoices that flow through their lock-box system.
Concentration: The level for which a factor will fund a single customer in your portfolio. This is usually expressed as a percentage. Done as a risk management measure to ensure that a single account does not represent a large majority of your portfolio.
Contra Account: This occurs when two companies are customers and suppliers of each other.  These accounts are ineligible.
Credit Limits: The financial limit that the factor places on each of your customers. This is often based on their credit rating and possible concentration issues.
Credit Protection: A facility that covers the client against the potential loss due to the non payment of an invoice. Often, this protection is provided by a credit insurance policy.
Credit Terms: A type of commercial sale which allows the customer to pay  30 to 60 days after an invoice is submitted. Terms are noted by preceding the number of days to pay with the word “Net” (i.e. Net 30 Terms).
Creditor: The company or person that is owed money
Construction Factoring: A specialized form of factoring that is designed to work with companies in the construction industry.
Confidential Factoring: A factoring facility where the customer is not notified that the client is factoring their invoices. (This is really non-notification factoring)
Current Account: account in good standing
Customer: A company that purchases products or services from the factoring client and who will pay the invoice that is factored by the client.
D
Days Sales Outstanding (DSO): Average length of time between sale and collection of invoice payment
Debtor: The company paying the invoice
Dispute: A situation where a customer does not pay an invoice due to a problem with the product or service.
F
Factoring: A form of business funding where a company finances their accounts receivable by selling their invoices to an intermediary called a factoring company.
Factoring Company: A company that provides factoring services and purchases accounts receivable.
Factoring Charge: A charge made to administer your invoices, collect them and process them. (Confusing definition and something CapFlow does not do).
Factoring Fee: The fee that the factoring company charges to finance your invoices. The fee is often a discount on the gross value of the invoice and is expressed as a percentage that increases over time (e.g. 1.5% per 30 days).
Freight Bill Factoring: Also called freight factoring. Is a specialized form of factoring that is offered to transportation carriers and freight brokers.
Funding Limit: This is the maximum amount of money that a factor can provide to your account.
Funding Period: This is the time period that starts when the factor purchases the invoice and finished when the customer pays the invoice in full. (Confusing definition)
L
Lien: the legal claim of collateral by a lender if the financing terms are unmet. Invoice factoring companies file a lien on a company’s receivables
Lockbox: A bank treasury management system. It is designed to receive payments by mail and deposit them to an account as quickly as possible. Most bank lockbox systems also scan invoices and documents and provide online viewing and management systems.
M
Mechanics Lien: A security interest in the legal title of a property by subcontractors and suppliers who have provided labor/products to improve the property.
Medical Factoring: A specialized form of factoring that is designed to work with medical companies that bill third party private insurance companies (CapFlow does not factor medicare of Medicaid receivables so I would recommend removing this)
N
Non-Recourse Factoring: A form of factoring where the factoring company will absorb any credit losses that result from a customer defaulting on an invoice. The types of credit losses that are absorbed vary by factoring company. The most common type of credit loss that is covered is due to bankruptcy or declared insolvency. See recourse factoring.
Notice of Assignment: A notice that is sent to customers informing them that the invoice has been factored and pledged as collateral. The NOA also informs the customer of the new payment address.
P
Purchase Order Financing: A type of funding that finances the supplier costs associated with a purchase order. This type of funding can only be used when the PO is for purchasing finished goods. PO financing transactions are often settled using factoring financing.
R
Rebate: The funds that are wired to your account once your customer pays the invoice in full. These are funds that were not initially advanced. The rebate is often calculated by subtracting the factoring fees and the advance from the customer payment. See advance.
Reserve: A specified amount of funds, often expressed as a percentage of the funding line that is used to cover bad debt expenses and payment shortages.
Recourse Factoring: A form of factoring where the factoring company will not absorb any credit losses that result from a customer defaulting on an invoice. See non-recourse factoring.
Reverse Factoring: A form of factoring where a (usually larger) company finances its receivables through an intermediary, to pay suppliers faster. This is done to favor suppliers and allow them to benefit from the credit of the larger clients. The intermediary finance company handles supplier payments on behalf of the client.
Remittance Address: the address to which a business’ clients should submit payment
Reserve: The amount of money held by the factor until they receive client payment. Typically, between 10% and 30% depending on the industry
Revolving Line of Credit: Money available to a company without an end time. Factoring can be seen as a revolving line of credit tied to your receivables
S
Schedule of Accounts: It’s a form that many clients’ use to submit their invoices for funding to the factoring company.
T
Termination/Payoff Agreement: Document between the client, existing factoring company, and new factoring company with the terms of the factoring buyout. This document ensures the hand off will move smoothly
U
UCC: Stands for Uniform Commercial Code. It is a uniform act that harmonizes the law of sales and commercial transactions in the 50 states.
UCC Lien: It is a security interest given by the owner of property to secure debt. Factoring companies use liens that are defined in the UCC.
V
Verification: The process where a factoring company verifies the validity an value of a client’s invoice with the customer.
W
Working Capital: The money available to a business regarding day to day operations (current assets minus current liabilities)

Apply for working capital

  • This field is for validation purposes and should be left unchanged.

Educational videos

Request a risk free funding quote

Fill out the form and we’ll get back to you within 24 hours

  • This field is for validation purposes and should be left unchanged.