Glossary
Factoring & trade finance glossary
60 essential terms, defined in plain English.
A
- Accounts PayableMoney a business owes its suppliers and vendors.
- Accounts ReceivableMoney owed to a business by customers for goods or services delivered on credit.
- Accounts Receivable FinancingFunding that advances cash against a company's unpaid B2B invoices, repaid when customers pay.
- Advance RateThe percentage of an invoice's value a funder pays upfront.
- Aging ReportA report that groups unpaid invoices by how long they've been outstanding.
- Asset-Based LendingA revolving credit line secured by receivables, inventory or equipment.
- Assignment of ClaimsThe federal process that lets a contractor assign government contract payments to a funder.
B
- Bill of LadingA shipping document that lists goods, origin and destination and serves as a receipt for freight.
- Borrowing BaseThe maximum amount available under an asset-based line, calculated from eligible collateral.
- Broker Credit CheckA review of a freight broker's payment history and credit before hauling a load.
C
- Cash Conversion CycleThe number of days between paying for inventory and collecting cash from customers.
- Cash FlowThe net movement of cash into and out of a business over a period.
- ChargebackA deduction a customer, often a retailer, takes from an invoice payment.
- CollateralAn asset pledged to secure financing.
- Concentration LimitA cap on how much of a facility can be tied to a single customer.
- Confidential FactoringFactoring in which customers aren't notified and keep paying the business directly.
- Credit InsuranceInsurance that protects a seller against customer non-payment.
D
- Days Payable OutstandingThe average number of days a company takes to pay its suppliers.
- Days Sales OutstandingThe average number of days it takes to collect payment after a sale.
- DebtorIn factoring, the customer who owes payment on the invoice.
- DilutionThe reduction in invoice value from credits, returns, discounts or disputes.
- Discount RateThe fee a factor charges, usually expressed per 30 days or per 10-day increment.
E
- Early Payment DiscountA discount offered to customers who pay before the due date, such as 2/10 net 30.
- Eligible ReceivablesInvoices that meet a funder's criteria for advancing.
- Estoppel LetterA letter in which a customer confirms the amount owed and agrees to pay the funder.
F
- FactorA company that buys invoices from businesses at a discount.
- Factoring AgreementThe contract that sets advance rates, fees, recourse terms and duration.
- Freight FactoringFactoring of trucking freight bills, usually with same-day funding after delivery.
- Fuel AdvanceA cash advance issued at load pickup to cover fuel before delivery.
- Full-Recourse FactoringFactoring where the business must buy back invoices that customers don't pay.
I
- InvoiceA bill requesting payment for goods or services delivered.
- Invoice DiscountingBorrowing against invoices while keeping control of collections.
- Invoice FactoringSelling unpaid invoices to a factor for an immediate advance.
- Invoice FinancingAn umbrella term for borrowing against or selling invoices.
L
- Letter of CreditA bank's guarantee to pay a supplier once agreed shipping documents are presented.
- LienA legal claim on an asset as security for a debt.
M
- Merchant Cash AdvanceA lump sum repaid from a share of future sales, often daily.
- Minimum VolumeA contractual minimum amount of invoices a client must factor each month.
N
- Net TermsThe number of days a customer has to pay, such as net 30 or net 60.
- Non-Notification FactoringFactoring where customers aren't told their invoices are assigned.
- Non-Recourse FactoringFactoring where the factor absorbs losses if an approved customer becomes insolvent.
- Notice of AssignmentA letter telling customers to pay the factor instead of the business.
O
- Over-AdvanceA temporary advance above the normal borrowing base.
P
- Payroll FundingFinancing that advances against invoices to cover payroll.
- Prime RateThe benchmark interest rate banks charge their most creditworthy customers.
- Proof of DeliveryDocumentation proving goods or services were delivered.
- Purchase OrderA buyer's document authorizing a purchase at agreed prices and quantities.
- Purchase Order FinancingFunding that pays a supplier so a business can fulfill a confirmed customer order.
R
- Rate ConfirmationA document from a freight broker confirming load details and agreed pay.
- RebateThe portion of the reserve returned to a client after a customer pays.
- Recourse PeriodThe number of days after which an unpaid invoice must be bought back in recourse factoring.
- ReserveThe portion of an invoice held back by a factor until the customer pays.
- RetainageA percentage of a construction payment held until project completion.
S
- Schedule of AccountsThe list of invoices a client submits to a factor for funding.
- Spot FactoringFactoring a single invoice without a long-term contract.
- Supply Chain FinanceA buyer-led program that lets suppliers get paid early at the buyer's credit rate.
T
- Term SheetA non-binding summary of proposed financing terms.
U
- UCC-1 FilingA public notice that a lender has a security interest in a business's assets.
V
- VerificationThe process of confirming an invoice with the customer before funding.
W
- Working CapitalCurrent assets minus current liabilities — the cash available to run daily operations.
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