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.