20 Accounts Receivable Finance Terms You Should Know

April 4, 2016

Knowing accounts receivable finance terms is important to managing your cash flow. Here are 20 terms you should know.

1. Accounts Payable

The money owed by a company to its vendors for goods and services it purchases on credit.

2. Accounts Receivable

The amount of money owed to a company by its customers.

3. Accounts Receivable Aging Report

A report that specifies unpaid customer invoices, including the dates due and days outstanding.

4. Accounts-Receivable Financing

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.

5. Advance Rate

The amount, usually in a percentage format, that an accounts-receivable financing company will advance on the invoices it receives to collect.

6. Asset Allocation

An investment strategy of assets that helps balance goals with the risks associated with it.

7. ACH (Automated Clearing House)

A way to transfer funds electronically. ACH transfers are reliable and ensure timely receipt of funds.

8. Buyout

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.

9. Cash Flow

The capital (money) that is going in and out of a business.

10. Factoring

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.

11. Factoring Rate

The amount a factoring company charges to give a company an advance on its receivables, usually expressed as a percent.

12. Invoice

An itemized bill of products and/or services provided. Typically, invoices include:

• An invoice number
• The name and the address of the product/service seller
• The name and address of the customer
• The date of ship or the date of when services were received
• A description of the goods or service
• The quantities of and total costs for the goods or service
• Any sales tax owed
• A grand total
• Payment terms

13. Lien

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.

14. Net Worth

A term which is used to describe the value of a company – the total assets minus any liabilities.

15. Nonrecourse Factoring

The least common form of factoring where the factoring company assumes all of the credit risks for invoice collection.

16. Notice of Assignment

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.

17. Recourse Factoring

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.

18. Reserve

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.)

19. UCC (Uniform Commercial Code)

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.

20. Wire Transfer

A way to transfer funds electronically. Wire transfers are not guaranteed for same-day availability and are managed by the Federal Reserve Bank.

Do you have questions about accounts-receivable finance?

Contact one of our financial experts at Scale Funding for more information.