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Learn About Factoring Terminology

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Factoring Terminology

Accounts Receivable

A commercial debt due for repayment usually in 30 – 90 days. In the factoring industry the accounts receivable is what a company sells to a factor.

Advance Rate

The amount of money provided immediately to the company factoring its accounts receivable expressed as a percentage of the total invoice amount. Advance rates usually range from 75% to 95%.

Broker

An individual who pairs clients in need of cash with appropriate financial entities including factors.

Concentration

The amount of one client’s accounts receivable due from a single customer.

Creditor

The party to whom money is owed.

Debtor

The business or organization that owes money on an invoice purchased by the factor; i.e. the client’s customers, also known as account debtors.

Discount Rate

The percentage of the face value of an invoice that a factor holds as its fee.

Due Diligence

The verification of information and its documentation given to a factor in order to facilitate a decision as to whether or not a particular invoice should be purchased.

Factor

A company that provides businesses with operating capital by purchasing their accounts receivable.

Factoring

Factoring is the process of purchasing commercial accounts receivable (invoices) from a business at a discount.

Funding

Advancing money (based on the advance rate) to a client.

Invoice

A legal debt instrument which indicates the amount due from a customer to pay for delivered goods or services.

Reserve

The amount of money that is not immediately provided to the company factoring its accounts receivables, expressed as a percentage of the total invoice amount (Advance Rate + Reserve = 100% or Total Invoice Amount). This money is transferred to the client once payment is received by the factor.

Schedule of Accounts

Report given by the client to the factor. The report lists information about the account of each of the client’s customers.

Verification

A step during the due diligence process in which a factor confirms the validity of an invoice with the customer.

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