Invoice Finance Glossary of Terms

Advance rate
An agreed percentage of debt a lender will make available for you to draw down. This is usually between 80% - 95%

Aged Debt Report
A report detailing the outstanding balance for each debtor over a given period.

Approved Debt
These are debts which a factoring or invoice discounting company are willing to finance against.

Assets
Any item owned by your company which has a cash value, such as buildings, equipment, savings etc.

Assignment of Debt
A factoring company will need an assignment of debt to allow them to chase and collect payment from your customers.

Associated Businesses
Any other businesses owned by you

Cash Flow
One of the most important areas of any business, cash flow is the management of cash going in and out of your business.

Confidential Invoice Discounting (CID)
Some invoice discounting lenders provide a confidential service, chasing payment from your customers under your business name, so they never have to know you use the service.

Credit Insurance
An insurance policy designed to protect your business in the event a customer fails to pay your invoices.

Disapproved Debts (Disapprovals)
These are debts which a factoring or invoice discounting company will not release finance against. A lender may do this if:

• An invoice is over ninety days old
• The invoice has been raised against an Associated Business; or
• If the debtor is disputing the debt.

Disapproved debts are also referred to as ineligibles.

Factoring
The process of releasing cash tied up in outstanding invoices. A factoring provider will advance up to 95% of the value of debt outstanding on your sales ledger, allowing you to put the cash to work without waiting for payment. As part of the factoring service a lender will also manage your sales ledger, credit control and collect payment from your customers. Factoring is ideal for smaller businesses which don’t necessarily have adequate management systems or headcount in place to effectively manage their sales ledger. Learn more about factoring or get factoring quotes.

Facility limit
A lender will put a limit on the amount of funds you can draw down at any one time, this is called a facility limit. You can often negotiate with your provider to increase this limit, making it perfect for growing businesses. Ensure that you are aware of the notice period required to increase your limit to ensure your business isn’t left short.

Invoice discounting
Factoring and invoice discounting are both forms of invoice finance. They both involve releasing cash tied up in unpaid invoices. The primary difference between the two products is the management of your sales ledger.

With a factoring service your lender will manage your sales ledger, credit control and chase payment from customers. Making it ideal for smaller businesses who lack the time and resource to adequately manage these functions.

With invoice discounting you would retain control of these functions with the lender providing you with cash as and when you issue invoices. Learn more about invoice discounting.

Minimum contract
The vast majority of lenders will want you to commit to a minimum contract period. If you want to cancel your contract before this period is over the lender will typically request all the fees they would have earned from the remainder of the contract.

Reassignment
A debt which was sent to an invoice finance lender which has been returned to you.

Reconciliation
A lender will want to make sure that the balance on your sales ledger matches the copy they have, this is usually done at same time each month.

Recourse Factoring
If a lender fails to collect payment from a debtor they will ask for the cash back they advanced you against that debt, this typically happens if a debtor fails to pay in 90 days. Learn more about factoring.

Service fee
The service fee is a charge collected by the lender for administering your account. This is typically a percentage of the funds they have advanced you, this amount is usually higher for factoring customers due to the extra administration work compared to an invoice discounting facility.

Working capital
Current assets exclusive of liquid funds and interest-bearing financial receivables less operating liabilities and non-interest-bearing provisions.