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 a normal state of operations and has paid back the loan.

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

Accounts Receivable Financing -The selling of outstanding invoices for funding. Learn more about accounts receivables financing here.

Advance -An amount of money that is lent to a company. When dealing with factoring, 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 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 a 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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