Quick answer
Receivables finance vocabulary is small but interlocking: a few pricing terms that set what you pay, a few structure terms that set how the facility works, and a legal layer that decides who gets paid first. Learn the five families and most term sheets become readable at a glance. The full A–Z definitions live on our glossary page.
Key takeaways
- Advance rate sets timing; discount rate multiplied by days outstanding sets price. They are not the same lever.
- Structure terms answer one question: are the invoices sold, or borrowed against?
- Risk terms all orbit the account debtor — the customer's credit, not yours, is what is being underwritten.
- The legal layer decides priority, and priority is what gets deals delayed at closing.
- Operational terms describe the evidence pack; funding speed is mostly a function of how complete it is.
Why do the same terms seem to mean different things at different funders?
Receivables finance has no single rulebook for vocabulary. Two funders can quote an identical headline rate and deliver materially different costs, because the words around the rate — the increment it accrues in, what counts as eligible, when the reserve releases, what triggers a chargeback — are doing most of the work.
The useful way to learn the language is not alphabetically. The terms fall into five families, and once you know which family a word belongs to, you know what question it is answering. Pricing terms answer what it costs. Structure terms answer how the money is arranged. Risk terms answer who absorbs a loss. Legal and filing terms answer who gets paid first. Operational terms answer what you have to send in.
What follows is an orientation rather than a dictionary. Each table groups the terms that interact with one another and explains the connection; the full A–Z definitions, with examples, sit on our glossary page.
Which terms describe what the money costs?
This is the family most often misread, because the most visible number — the advance rate — is not a price at all. It is a timing figure. The price is the discount rate, and what turns a rate into a dollar cost is the number of days the invoice stays open.
| Term | What it controls | How it connects |
|---|---|---|
| Advance rate | The share of the invoice paid upfront — typically 80%–95%, and up to 97% on freight bills | Whatever is not advanced becomes the reserve |
| Reserve | The portion held back until the customer pays, typically 5%–20% | Released as the rebate once payment lands and fees are deducted |
| Discount rate | The factor's fee, usually quoted per 30 days or in 10- or 15-day increments | Rate × days outstanding = the actual cost; the increment matters as much as the rate |
| Rebate / reserve release | What reaches your account at the end of the cycle | Advance + rebate = invoice value − fees − dilution |
| Dilution | Credits, returns, discounts and short-pays that shrink what is collected | High dilution pushes the advance rate down and the reserve up |
| Minimum volume | A contractual floor on how much you factor each month | Missing it triggers a charge regardless of how good the headline rate was |
| Over-advance | A temporary advance above the normal borrowing base | Usually seasonal and priced higher than the standard advance |
Which terms describe how the facility is structured?
Every structure in this market resolves to one question: are the invoices sold, or are they used as collateral for borrowing? Factoring sells them; asset-based lines borrow against them. Almost every other structural term is a variation on one of those two, or a bridge between the purchase-order stage and the receivable stage.
| Term | What it means | How it connects |
|---|---|---|
| Invoice factoring | The invoices are sold to a factor, which collects from the customer | The debtor pays the factor; collections move out of your office |
| AR financing / asset-based line | You keep the invoices and borrow against them | Availability is governed by a borrowing base rather than invoice by invoice |
| Borrowing base | Eligible collateral multiplied by the advance rate — the maximum you can draw | Recalculated from the aging report, usually weekly or monthly |
| Spot vs. full-ledger | One invoice at a time, versus all invoices from selected customers | Spot is flexible and costs more; full-ledger earns the lowest rates |
| Confidential / non-notification | Customers are not notified and keep paying you directly | Requires tighter controls and reporting, so it is usually for established firms |
| Purchase order financing | Funds the supplier so you can fulfill a confirmed customer order | Converts into receivables financing once the goods are delivered and invoiced |
| Supply chain finance | A buyer-led program letting suppliers get paid early at the buyer's credit rate | Also called reverse factoring — the buyer sets it up, not you |
Which terms describe who carries the risk?
Every term in this family orbits the same figure: the account debtor. In receivables finance the customer's creditworthiness is the asset being underwritten, which is why businesses with weak balance sheets and strong customers qualify where bank lending would not.
| Term | What it means | How it connects |
|---|---|---|
| Debtor / account debtor | The customer who owes payment on the invoice | Underwritten more closely than the business selling the invoice |
| Eligible receivables | Invoices that meet the funder's criteria for advancing | Typically under 90 days old, undisputed, owed by a creditworthy business customer |
| Concentration limit | A cap on how much of the facility one customer can represent | Applies even to excellent customers — it is a portfolio rule, not a judgment |
| Recourse | You repurchase invoices the customer does not pay | Cheaper, because the credit risk stays with you |
| Non-recourse | The factor absorbs the loss if an approved customer becomes insolvent | Covers insolvency, not commercial disputes over quality or delivery |
| Recourse period | How long an unpaid invoice runs before it is charged back — commonly 60 to 90 days | Determines when a slow-paying invoice becomes your cash problem again |
| Credit insurance | Insurance against customer non-payment | Sometimes what makes a non-recourse offer possible on a large account |
| Days sales outstanding | The average number of days it takes to collect after a sale | The number that converts a monthly discount rate into a real annual cost |
Which terms are legal or filing terms?
This family decides who gets paid first, and it is overwhelmingly where closings slow down. A funder advancing against receivables normally needs first position on them, which means any earlier filing has to be subordinated or paid off. The time cost of discovering an existing blanket lien late is measured in weeks.
| Term | What it means | How it connects |
|---|---|---|
| UCC-1 filing | Public notice that a lender holds a security interest, filed in the state of organization | Priority generally follows filing order, which is why first position matters |
| Lien | The legal claim on an asset securing a debt | Factors typically require a first-position lien on receivables |
| Subordination or payoff | An existing lender steps behind the new funder, or is repaid | Usually the gating item on a closing timeline — start it early |
| Notice of assignment | The letter instructing customers to pay the factor instead of you | Standard practice, and what makes the change of remittance stick in practice |
| Assignment of Claims | The federal route for assigning government contract payments to a funder | Notice to the contracting officer and surety; typically takes 2–4 weeks |
| Estoppel letter | The customer confirms the amount owed and agrees to pay the funder | Requested on large, unusual or heavily concentrated invoices |
| Term sheet and factoring agreement | The term sheet proposes; the agreement binds | Read term length, minimum volume and termination clauses as one package |
Which terms describe the day-to-day paperwork?
The operational family is the one you will use most often after the facility is live. It describes the evidence pack: what you send, what gets checked, and where the money lands. Funding speed is very largely a function of how complete and consistent that pack is.
| Term | What it means | How it connects |
|---|---|---|
| Schedule of accounts | The batch of invoices submitted for funding | Each schedule is verified before it funds |
| Verification | Confirming with the customer that the goods or services were accepted and the amount is due | Fast verification is the main reason established clients fund same-day |
| Proof of delivery | Documentation showing the work or goods were delivered and accepted | Required on nearly every transaction; its absence is the usual cause of a hold |
| Bill of lading and rate confirmation | The freight pair: what was hauled, and what was agreed to be paid for hauling it | Together with the invoice they are the entire freight factoring file |
| Fuel advance | Cash released at pickup, before the load is delivered | Deducted from the delivery payment on the same load |
| Aging report | Open invoices grouped by how long they have been outstanding | The first document a funder reads, and the basis of the borrowing base |
| Lockbox | A controlled account that receives customer payments | Where the notice of assignment directs remittance |
How do the terms fit together across one transaction?
The clearest way to see the vocabulary working is to follow a single invoice from term sheet to rebate. Nearly every word in the five families appears once, in order.
- 1Term sheet. Advance rate, discount rate and increment, recourse or non-recourse, concentration limits, minimum volume and term length are proposed. Nothing is binding yet.
- 2Diligence and filing. The funder reviews the aging report, assesses dilution, searches existing UCC filings, and arranges subordination or payoff where needed. A UCC-1 is filed to establish position.
- 3Notice of assignment. Customers are told where to remit, and a lockbox receives payments. On federal contracts this step is instead the Assignment of Claims process.
- 4Schedule of accounts. Invoices are submitted as a batch with proof of delivery. Verification confirms the debtor accepted the work and owes the amount. Ineligible invoices are set aside.
- 5Advance. The advance rate is applied to the eligible invoices and funds are wired. The unadvanced remainder becomes the reserve.
- 6Collection and rebate. The customer pays the lockbox. The discount rate is applied for the days the invoice was open, dilution is accounted for, and the rebate releases. If the invoice goes unpaid past the recourse period, the recourse terms decide what comes back to you.
Where do I find the full A–Z definitions?
This article is deliberately thematic rather than exhaustive. Our glossary page carries the complete alphabetical reference — every term above plus the ones that only come up occasionally, each with a short definition, a note on how it is used in practice, and a link to the service or guide where it matters most.
If you are reading a term sheet right now, the fastest route is to work through the pricing table above first, then look up anything unfamiliar on the glossary. If you are comparing two offers, our factoring cost calculator will convert competing rates and increments into comparable dollar figures.
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Written and reviewed by the National Invoice Factoring funding team — specialists in receivables and trade finance since 2009.
