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Factoring Glossary
Account Receivables Factoring: The selling of accounts
receivable or invoices in order to secure immediate, working
capital (cash). Factoring has been used by businesses around the
world for more than four centuries to manage cash flow.
Asset Based Lending:
Lending against specific assets (collateral) of the borrower,
i.e. accounts receivable, inventory, equipment, etc.
Cash-Flow:
The
net cash that flows into or out of a business during a specific
period of time.
Commercial Finance Company: Provides loans to finance the
working capital needs of a business.
Factor: A company purchases your receivables by giving you
an advance payment up front. This advanced payment is usually 70
- 90% of the total value of the receivables. After charging a
small fee (2% and up) the remaining balance is released upon
full receipt of payment for all the receivables/invoices.
Factoring:
A form
of accounts receivable (invoice) financing involving the sale of
accounts receivable to a factoring company either with or
without recourse. Factoring can be on a notification or
non-notification basis. In a notification agreement, the
seller's customers will make payment directly to the factor.
A credit check is usually made on the seller's customer; so the
factor can serve as a credit information resource for the
seller.
Large Business: Generally businesses in need of receivables
financing from $750,000 to $3 million.
Medium Business: Generally medium businesses are those
requiring receivables financing from $150,000 to $750,000.
Recourse Loan: Loan for which the endorser or guarantor
has a secondary liability in the case of a default by the
borrower.
Small Business: Small businesses are considered small when
receivables financing is needed from $5,000 to $150,000 monthly.
Working Capital: The excess of current assets over
current liabilities. It indicates the short-term liquidity of
the company. |