Invoice Finance Glossary

The following section details terms which are commonly associated with invoice finance.

If you are looking for a specific term, click one of the following links to go to the relevant section:

A – C | D – F | G – M | N – R | S – Z

ABFA
Asset Based Finance Association (Previously the FDA) The Industry body setting protocols for its members within the factoring and now ABL industry

Advance Rate
As part of the invoice finance facility the factor or discounter pre-agrees an advance rate which will be paid on each factored or discounted invoice.

Advance rates on invoices vary greatly depending on a multiple of factors. The most influential factor in what the advance rate will be are the “quality” of the invoice i.e. is the invoice with a company which is more likely to pay it than not. If the invoice raised is with a reputable company such as a FTSE 250 company then the advance will be high – up to 90% of the value invoiced for.

Other factors may include the industry within which the debtor operates and the structure of the invoice agreement e.g. stage payment invoice and application for payment agreements.

Asset Based Lending (ABL)
This is the term used to refer to a commercial finance package secured by collateral, i.e. business assets. This may take the form of a business loan or line of credit, typically secured by balance sheet assets such as accounts receivable, stock, inventory or property, etc.

Asset Based Lending may also be referred to as “Asset Backed Lending” or “Commercial Finance”. This type of Asset Based facility is often used to meet varying cash flow requirements of businesses, for example: expansion, management buy outs / buy ins or simply to finance new machinery.

Interest rates may be more competitive for ABL rather than other sources of funding, for example unsecured loans, because if the business defaults then the lender has the right to take claim and ownership of the asset(s), so as to re-coup their funds and / or costs.

Business Overdraft
Business overdrafts are one of the most popular means of commercial lending in the UK. As with personal overdrafts they can be increased over time as the bank gets a better understanding of the cash flows of the business and the turnover the business gets larger.

CHOCs
A name to describe a variation of factoring, whereby the factor allows its client to conduct collection activity, until an agreed date past due.

Client Account
The account where all movement relating to funds in use is recorded.

Client Manager
An individual employed by the factoring company, whose responsibilities are to ensure service levels to its clients

Collect out
Where the factor recovers advances from the invoices assigned.

Concentration limit
Where a client of factoring companies, conducts a large percentage of its business with one company, some factors may exclude funding above this percentage of outstanding debtor balances.

Credit Controller
The person designated by the factoring company to collect your outstanding invoices. – In practice this might be conducted by a team, working in rotation, dependent on the size of the factoring company.

Credit Protection
When a factored invoice remains outstanding for longer than the period agreed with the factor, the factor reclaims the advanced money and hands back the ownership of the invoice. If the size of the invoice is large this may pose a potential threat to the operations of the business.

To mitigate for such circumstances there is a form of invoice finance termed “non-recourse” where the invoice finance provider offers credit protection against bad or late debts. If, after the agreed period of time, the invoice remains unpaid the invoice financier does not claim the advance back but relies on a form of insurance which protects against this outcome.

Most invoice factoring companies offer credit protection on the invoices they factor or discount.

Cross Guarantees
These are guarantees, given to the factor, by associated companies, within a group structure, whereby the factor takes an across the group view of risk, within that group of companies.

Touch is the UK’s leading independent factoring and invoice discounting broker, helping over 500 businesses explore their financing options every month. Our experts are always on hand to answer any of your questions – 0845 388 9725, or you can compare factoring quotes instantly online >>