Jargon Explained
Every trade, profession or industry has its own particular language. This makes it difficult for anyone else to understand what they are talking about! We avoid jargon wherever possible, but it’s inevitable that technical terms will occasionally pop up. Hopefully this list of explanations will prove helpful — and if you talk to any of our competitors you’ll certainly need it!
These are the sales invoices you have sent to your customers. Sometimes referred to as your “sales ledger”. In other words, the money you are owed.
When an invoice finance company agrees to lend you money which is secured against your assets. These assets can include your unpaid sales invoices, stock and machinery.
The legal process by which the invoice finance company buys your outstanding invoices. This gives them the right to receive payment from your customer and enables them to pay you in advance a proportion of the value of the invoices they have purchased.
The amount of funding available to you at a particular point in time. This is based on the invoice finance company’s assessment of the value of the outstanding invoices they have purchased from you, less any pre-payments you have already received from the invoice finance company.
This stands for Bankers Automated Clearing System. Funds can be transferred between bank accounts via this system in 3 working days.
A sales invoice that is required to be paid immediately i.e. without a credit period — now!
This stands for Clearing House Automated Payment System (telegraphic transfer). Funds can be transferred between bank accounts via this payment system on the same day.
This percentage changes on a daily basis because your sales ledger value is moving all the time from you raising invoices and your customers paying. The concentration is calculated on a percentage basis and is essentially, the total owed to you by one customer as a percentage of the total you are owed by all your customers.
This is the arrangement where an invoice finance company is assigned (see “assignment” above) your outstanding invoices but you are still responsible for collecting the money from your customers. If your customers remain unaware that a financial company is involved, this is called “confidential invoice discounting”.
The amount of time you give your customers to settle their invoices before you expect payment e.g. 30 or 60 days.
A customer who has been issued an invoice for goods or services provided and is responsible for the payment
A financial limit set by the invoice finance company - the maximum amount they are prepared to approve for pre-payment on a specific customer of yours. Where debtor protection is in place (see next definition, below) this limit specifies the level of risk the invoice finance company is prepared to take on a specific customer of yours.
Protection against your customers not paying due to insolvency. If one of your customers ceases to trade and you have an insured limit for that customer, then the insurance company will cover the balance of the bad debt.
This is the arrangement where an invoice finance company is assigned (see “assignment” above) your outstanding invoices, but you are still responsible for collecting the money from your customers. When you receive those payments you bank them into a "Trust Account" which is controlled by the invoice finance company. Under this arrangement your customers will be aware that a finance company is involved but you collect the money due from them.
A charge that is calculated on the amount of funds that we have pre-paid. This is likened to ‘interest’ on the amount advanced to you and owed to us. It is expressed as a percentage figure and is calculated on a daily basis.
A limit set by the invoice finance company that caps the maximum amount the current account can total at any one time i.e. you cannot be pre-paid over this figure.
This is the arrangement where an invoice finance company is assigned (see “assignment” above) your outstanding invoices and you agree to let that invoice finance company collect the debt from your customers that those invoices represent.
The amount the invoice finance company charges against each invoice once it is assigned. This is usually expressed as a percentage of the debt that is assigned to it.
A document detailing the amount that your customer needs to pay for the goods or services you have provided and on what terms.
A company such as Ultimate Finance that provides Factoring and Invoice Discounting services.
Letters of credit are financial undertakings issued by a bank. The bank agrees to pay a fixed sum to a seller on production of specified documentation. They can be part of a Trade Finance facility where you are purchasing items from a supplier abroad who needs to be sure payment will be made.
The difference between the outstanding invoices assigned to your invoice finance company (your total sales ledger balance) and the current account.
The initial amount paid by the invoice finance company to you once you issue an invoice to your customer. This figure is usually expressed as percentage of the invoice amount and is payable when requested by you.
The ledger that holds details of all the invoices from your suppliers. i.e. the amount you owe to other companies for goods or services provided to you.
The process of matching the balance of your sales ledger to the balance recorded by the invoice finance company at the same point in time (usually the end of each month).
If your customer fails to pay, the invoice finance company can after an agreed period of time will request repayment of any pre-payment that has been provided to you against that invoice.
An additional charge made to cover the cost of collecting debts which have gone beyond the agreed credit period. This charge is expressed as a percentage of the amount outstanding.
An amount that an invoice finance company might need to hold in reserve for when issues arise. This can be a dispute between you and your customer that brings into question whether payment will be received. It will therefore relate to elements of the debt(s) where the risk of non-payment has changed or were considered at greater risk of non-payment when the invoice was assigned.
These are the invoices you have sent to your customers. This is sometimes referred to as your “accounts receivable”. In other words, the money you are owed.
The amount charged by an invoice finance company for administering your invoices . This is typically expressed as a percentage of sales and is higher for a full factoring service than for invoice discounting . This is to reflect the level of work involved for the invoice finance company to collect the debt owed to you.
The value of the invoices in your sales ledger at the point when the facility commences. This debt will be "taken on" by the invoice finance company when the facility starts and will be used to create the initial availability of funds for pre-payment.