Factoring and Financing Glossary

Account debtor - The customer of a factor's customer. This is the company that owes the money due on the invoice(s).

Accounts receivable – Money owed to a company by an account debtor for products and services sold on credit. These are also called trade credits or sales on open account. Accounts receivable are considered a liquid asset on the balance sheet.

Accounts receivable financing - A short-term financing strategy in which account receivables are pledged as collateral for a loan. The loan amount is determined as a percentage of the amount of accounts receivable that are pledged.

Acknowledgment form - A form sent to the account debtor by the factor, confirming that the customer's invoice is valid and the account debtor will remit the payment due under that invoice to the factor.

Advance - The money the factor sends to the customer upfront, after the verification process is complete, and before the factor receives its money from the account debtor. The advance rate generally ranges between 70% to 95% of the face value of the factored invoices.

Asset-based loan - A business loan where the borrower pledges business assets, such as accounts receivable, equipment, or inventory as collateral for the loan. Funds are used for business related expenses. All asset-based loans are secured.

Charge back – An amount of money owed to the factor and deducted from the reserve, or “charged back” to the customer when the factor is unable to collect from an account debtor for payment on an invoice that was factored.

Credit – An extension of time to make payment for products or services received sooner.

Credit analysis – The process of analyzing the payment history, records, and other financial affairs of a prospective customer to determine its creditworthiness. This is also called due diligence.

Credit card factoring - An alternative to accounts receivable factoring or financing through a business loan. With credit card factoring a factor provides cash upfront based on future credit card sales. This is also called merchant cash advance.

Creditor – The person or business to whom money is owed.

Factor – The company that purchases the accounts receivable (invoices) from the customer.

Factoring – The selling of a company's accounts receivable in return for immediate cash.

Factors customer - The business that sells its accounts receivable to the factor.

Factors fee - The fee the factor charges for funding the customer’s accounts receivable.

Factors reserve - A deposit maintained by the factor, to guard against disputes between the customer and the account debtor, and to guard against bad debt losses due to account debtor non-payment. This is the money retained by the factor when the advance is sent to the customer. The reserve is sent to the customer after the account debtor 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 factoring services.

Factors verification – The process by which the factor verifies that the product or service provided by the customer was received and accepted by the account debtor, and that the account debtor intends to pay the factor the money due under the invoice. This process is completed before the factor makes the advance payment to the customer.

Invoice factoring – The sale of approved invoices for immediate cash.

Non-recourse factoring - In this type of factoring, the risk of client repayment is assumed by the factor. Factoring fees are often higher for this form of factoring and the customer is still responsible for performance-related responsibilities relative to the quality of the products and/or services provided.

Purchase order financing - The assignment of purchase orders to a financing company that then assumes the obligation of billing and collecting. Typically, this form of financing is tied to a specific transaction where the company requires cash to be able to acquire the wholesale materials or products for which it has received the purchase order.

Recourse factoring - In this type of factoring, the risk of account debtor non-payment remains with the customer. If the account debtor is financially unable to pay the money due under the invoice, the factor may collect that money from the customer.   

Reserve - The amount withheld by the factor net of the advance payment to provide a financial cushion to protect against shortages, disputes between the customer and the account debtor or bad debt losses due to account debtor non-payment.

Reserve Release - The process of the factor releasing final money due to the customer once the invoice has been totally satisfied less any applicable fees or charge-backs.

UCC (Uniform Commercial Code) - The collection of laws dealing with business transactions in the United States.

UCC-1 - A financing statement that is filed to perfect a security interest in collateral and establishes priority in case a debtor defaults on payment or files for bankruptcy.

Working capital - The amount of money a business has available to conduct its day-to-day operations. Working capital includes money the owner or investors have invested in the company, retained earnings and supplier credit. A business with limited working capital benefits from factoring by eliminating the time that invoices are outstanding.

 

Benefits of Factoring with GrowCo:

  • Rates as low as 2%
  • Funds deposited into your account within hours
  • No long-term contracts
  • No minimum volumes or minimum fees
  • Factor only when you want
  • Factor only the invoices you want
  • Flexible and creative financing programs other than factoring
  • Super fast approval
  • No application fees

No Financials Needed. No Application Fees. Creative Financing for Any Industry. Rates as Low as 2%.

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