Knowing accounts receivable finance terms is important to managing your cash flow. Here are 20 terms you should know.
The money owed by a company to its vendors for goods and services it purchases on credit.
The amount of money owed to a company by its customers.
A report that specifies unpaid customer invoices, including the dates due and days outstanding.
Also known as factoring, accounts receivable financing is a common financial transaction where a company sells its accounts receivable to a third party at discount.
The amount, usually in a percentage format, that an accounts-receivable financing company will advance on the invoices it receives to collect.
An investment strategy of assets that helps balance goals with the risks associated with it.
A way to transfer funds electronically. ACH transfers are reliable and ensure timely receipt of funds.
In terms of factoring accounts receivable, a buyout occurs when a new factoring company pays off an existing factoring line, business line of credit or business loan.
The capital (money) that is going in and out of a business.
Also known as accounts receivable financing, factoring is a common financial transaction where a company sells its accounts receivables to a third party at a discount.
The amount a factoring company charges to give a company an advance on its receivables, usually expressed as a percent.
An itemized bill of products and/or services provided. Typically, invoices include:
A lien is a legal claim that gives a business (or person) the right to keep something belonging to another business (or person) until debt is paid.
A term which is used to describe the value of a company – the total assets minus any liabilities.
The least common form of factoring where the factoring company assumes all of the credit risks for invoice collection.
A notification your factoring company will send to the customers whose invoices you choose to factor. This notice lets them know that the factoring company will be receiving future payments and includes the details on where to send the payments.
The most common form of factoring in the accounts-receivable finance industry. In recourse factoring the borrower assumes responsibility for invoice payment. If the invoice is not paid within a specified amount of time (usually 90+ days), the lender has the right to sell the invoice back.
In terms of accounts-receivable financing, the reserve is the amount the factoring company keeps. (If you are advanced 90 percent, the factoring company keeps 10% in reserve.)
A government set of rules and guidelines stating how sales and commercial transactions need to be carried out in the United States. It also outlines the process for notification of liens.
A way to transfer funds electronically. Wire transfers are not guaranteed for same-day availability and are managed by the Federal Reserve Bank.
Contact one of our financial experts at TCI Business Capital for more information.