Glossary of Factoring industry terms and some other useful Trade Terms and definitions.

Approved debts – the invoices against which a factor is prepared to make an advance percentage available.

Asset based lending – is where a financier will make advances against a mixture of business assets such as machinery, stock, land and buildings most commonly in conjunction with an invoice finance facility.

Assignment – the legal process whereby a client hands over to the factor all rights to collection of outstanding debtors including all items where value has been received and due to be invoiced

Ban of assignment – where a customer refuses to accept assignment to a factor.

Factoring – an advance against unpaid sales invoices together with sales ledger management.  Usually but not always for whole of turnover.

High customer involvement/Concentration – where sales outstanding to one customer  account for a high percentage of the ledger.  Also known as a Prime Debtor.  Can lead to restrictions on funding depending upon their credit worthiness and the financier’s attitude to concentrations.

Invoice Discounting – an advance against unpaid sales invoices without ledger management.  Most often confidential.

IP (initial percentage) or advance percentage – is the amount of advance available against each invoice.  Typically in the range 70% - 90% although 100% is occasionally achievable.

Non-Recourse Factoring – is where the factor also assumes the credit cover risk for an additional service fee.

Recourse Factoring – the financier will fund invoices only for a set period typically 90 days from date or from end of month of invoice.

Trade Finance – most commonly employed in a purchase scenario to guarantee payments to suppliers overseas or in the domestic market without compromising existing bank facilities.