Accounts Receivable Factoring Glossary

Glossary of Invoice Factoring Terms

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Asset Based Loan (ABL) – A short term loan taken by the company’s assets like inventory, real estate, equipments or accounts receivables. Assets are returned once the company returns to normal operations and has paid back the loan.

Accounts Receivables – Money owed to you by your customers, usually by issuing an invoice that is due to be paid within a certain period of time. Accounts receivable appears in the balance sheet as an asset since it’s considered to be near cash.

Accounts Receivable Financing – Selling of outstanding invoices after approaching an accounts receivable factoring company for funding. Learn more about accounts receivables financing here.

Advance – Amount of money that the factoring company advances to a company when they buy invoices. 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 85% 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.

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Bad Debt – A debt that has a minimal or limited chance of being collected. Bad debt is often written off or sold to a collections agency.

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Collections – Payments received by the factor for invoices that were factored.

Concentration – The level upto which a factor will fund a single customer in your portfolio. Usually measured in percentage.

Credit Limits – The financial limit that the factor places on each of the customers. This is often based on their credit rating and possible concentration issues.

Confidential Factoring – A factoring facility where the customers are not notified that the client is factoring their invoices.

Credit Protection – Facility that covers the client against a potential loss due to the non-payment of invoices. Often, this protection is provided through a credit insurance policy.

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