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A Accounts
receivable
(also known as your sales ledger)
Accounts receivable is one of a series of
accounting transactions dealing with the
billing of customers who owe money to a
person, company or organization for goods
and services that have been provided to the
customer. In most business entities this is
typically done by generating an invoice and
mailing or electronically delivering it to
the customer which is to be paid within an
established timeframe called credit or
payment terms.
Adverse Credit
If you have adverse credit, this means that
you are considered to be less than ideal to
loan money to. Practically everyone has a
credit rating which displays their official
history of debt repayments, whether this is
through a mortgage, a credit card or other
form of loan. If you have adverse credit, it
could be because your repayment record shows
missed repayments, for example. A lender
will consider this when deciding if he will
currently give you a loan, and charge more
interest on the loan if that is the case .
Other reasons for you having an adverse
credit rating may include County Court
judgements against you, or if you are
self-employed, a member of the armed forces
or even if you just move around a lot. It is
generally agreed that over 25% of the
population have an adverse credit rating so
there is no particular shame involved.
Annual percentage rate
Annual percentage rate (APR) is an
expression of the effective interest rate
that the borrower will pay on a loan, taking
into account one-time fees and standardizing
the way the rate is expressed. In other
words the APR is the total cost of credit to
the consumer, expressed as an annual
percentage of the amount of credit granted.
APR is intended to make it easier to compare
lenders and loan options.The APR is likely
to differ from the "note rate" or "headline
rate" advertised by the lender, due to the
addition of other fees that may need to be
included in the APR.
Arrears
Arrears is a legal term for a type of debt
which is overdue after missing an expected
payment. Arrears accrue from the date on the
first missed payment was due. The term is
often used to describe being late with rent,
royalties (or other contractual payments),
child support, mortgage payments, car
payments or other legal financial
obligation. For example, a housing tenant
who is obliged to pay rent at the end of
each month, but who has not paid rental due
for 90 days is said to pay rent in arrear,
but to be three months in arrears.
Asset based lending
Asset based lending refers to a financial
service whereby the provider will fund
against a range of assets within their
customer's business e.g. sales invoices,
property, plant and machinery and stock.
Asset finance
Asset Finance
is funding to acquire additional
assets to drive a business forward. Almost
any asset can be financed or leased.
Examples include cars, vehicles, and
equipment. Asset turnover
This is a ratio which measures the
effectiveness with which a business uses its
assets in relation to the level of income or
sales, (turnover), which they generate. It
is calculated by dividing income by capital
employed
Assignment, assign, assigning
The legal process by which a factoring of
invoice discounting company takes ownership
of rights to receive payment in respect of
their client's sales invoices. This enables
the factoring company to provide prepayments
against the invoices. B
Balance Sheet
A statement of the financial position of a
business at a particular date showing the
various categories of assets and how they
have been financed.
Bank of England base rate
The official bank rate of the Bank of
England, the Bank of England base rate is
the key interest rate used for enacting
monetary policy. When an announcement of the
change in interest rates is made this is the
rate the Bank of England is changing.
Changes are recommended by the Monetary
Policy Committee and enacted by the
Governor.
Bridging loan
A short term mortgage (secured against a
property) with a borrowing term in months
not years. Normally a bridging loan is
used to cover shortfalls between buying one
property and selling another. A good example
demonstrating the use of a bridging loan is
when you short term funds to buy a new
property when the sales of your existing
home has either fallen through or not yet
completed.
Buy to let mortgage (BTL)
Specifically designed for investors to
borrow money to purchase property in the
private rented sector in order to let it out
to tenants. Lenders take different
approaches. The amount of money investors
can borrow is determined by the rental
valuation of the property. Usually the
annual rental income has to cover a certain
percentage of the mortgage repayments,
somewhere between 120% and 150%. This is to
allow surplus rent to cover other costs such
as property maintenance and void periods
(periods when there are no tenants living in
the property and therefore no rental
income). C
Capital
The amount of the loan on which interest is
calculated.
Cashflow finance
Cash flow
finance raises money on
outstanding invoices so that you have the
cashflow to run and grow your business,
depending on your client base and the
operating conditions of your business.
Cash invoice or payment terms
A sales invoice that is required to be paid
immediately i.e. without a credit period.
Collection period
The average length of time that it takes for
a customer to pay a sales invoice. It is
calculated by dividing trade debtors by
income (or turnover), times 365 days to give
the average number of days for which the
sales invoice has been outstanding.
Commercial Mortgage
A commercial mortgage is a loan made using
property as collateral to secure repayment.
A commercial mortgage is similar to a
residential mortgage, except the collateral
is a commercial building or other business
property, not residential property.
Confidential invoice discounting
A facility where the debtors are not aware
of the invoice discounter's involvement.
Confidential Factoring
Confidential Factoring is a facility where
you receive funding and credit control
support without your debtors being aware of
the providers involvement.
Credit Agencies
A credit agency is an agency that is
responsible for holding your credit history
details. The two principle credit scoring
agencies are Experian and Equifax.
Both offer the above basic one off
service however they each offer the
alternative solutions below When you
apply for a loan, the lender will approach a
credit agency to check upon your record, and
determine whether to offer you a loan based
upon the records the credit agency holds. If
you are curious about your credit history
you yourself can apply to a credit agency to
see what records they hold about you. You
will usually be charged a fee to see this
record. It is possible to apply to a credit
agency to have details of your credit record
changed as well. To see more information on your credit status click here
Credit period
The amount of time granted to the buyer by
the seller before which the buyer must pay
the sellers invoice e.g. 30 days net, 60
days net.
Credit protection
Protection against debtors not paying due to
insolvency or in some cases protracted
default. Also known as non recourse.
D
Debt
Debt is money that you owe to either
companies or individuals. It is the total of
unsecured debt ( personal loans, unpaid
credit cards & store cards balances,
overdrafts) and secured debt (mortgages,
secured loans, car loans).
Debtors
A person who owes a debt and a person to
whom the debt is owed.
Deferred Debit Card
The deferred debit card, which operates like
a normal debit card, except that all
purchase transactions are postponed until
the end of the month, thereby giving the
customer between 1 and 31 days of
interest-free credit. Disclosed invoice
discounting
An invoice discounting facility whereby the
client receives early payments against their
sales invoices but retains responsibility
for telephone and paper based collection of
payments from debtors. Payments are banked
by the client into a "Trust Account" which
is controlled by the discounter.
Discount charge
Part of the cost of factoring or invoice
discounting. A percentage over base rate
charged in respect of the level of the
outstanding liability of the client to the
factor or discounter.
Dunning letters
Chasing letters sent to debtors to encourage
payment of outstanding sales invoices.
E
Early payment
Also called "Prepayment". The funds provided
to the client against their invoices.
Normally expressed as a percentage e.g. 85%
of the gross value.
Equity
The monetary value of a property or business
beyond any amounts owed on it in mortgages,
claims, liens, etc. If you have a property
that is valued at £150,000 and you have
mortgage with an outstanding balance of
£50,000 then you £100,000 of equity in your
property which you may choose to borrow
against either with a secured loan or
remortgage
Export factoring
Export factoring is a factoring facility in
respect of debtors based abroad. This may
include a collections (credit control)
service, funding against invoices and credit
protection also known as bad debt protection
(non recourse).
F
Factoring
A facility whereby the client receives early
payments against their sales invoices and a
collections service to chase in unpaid
debts. Bad debt protection (non recourse)
may also be provided.
G Gross profit
The difference between income (or turnover)
and the direct cost of providing the
service. I
Import factoring
Import factoring is a service offered to
clients abroad who have customers within
this country. The import factor will
undertake the collection of sales invoices
locally providing a service to the exporter
abroad.
Invoice
An invoice is a document detailing the
payment required (or in the case of cash or
proforma invoices already made) in respect
of good or services provided.
Invoice discounting
Invoice discounting is a facility whereby
the client receives early payments against
their sales invoices but retains
responsibility for telephone and paper based
collection of payments from debtors.
L
Letter of credit
Letters of credit are financial instruments,
issued by a bank, that undertake to pay a
fixed sum to a seller on production of
specified documentation. They can be
arranged as part of a Trade Finance
facility.
N
No Credit History
If you have no previous or existing credit
agreements in place then you probably have
no credit history This means lenders will
find it more difficult to offer you credit
or a loan. If you have no credit history
then they can’t tell whether you are a risk
or not and usually they will feel unable to
offer the loan. Don’t despair though, there
are some finance companies who will offer
you a loan even if you have no credit
history, so shop around and se who’ll give
you most favourable terms.
Non Recourse
Non recourse refers to an invoice finance
facility that includes up to 100% protection
against bad debts. If your debtor becomes
insolvent the invoice finance company will
credit the value of the invoice to your
account (the remaining balance if a
prepayment has already been provided to
you).
Non Status
Non status is a term used to describe a poor
credit rating for an individual or a
business. Certain individuals may also be
classified as non status even if they have a
good credit record, self employed people can
fall into this category. Non status can also
be known as bad credit or sub-prime credit.
O Overdraft
An overdraft is a borrowing facility
attached to your bank account, set at an
agreed limit. It can be drawn upon at any
time and is ideal for your day-to-day
expenses, particularly to see you through
cashflow problems. It is worth noting that
loans are probably more appropriate for
long-term funding. An overdraft is likely to
cost more than a loan for a long-term
purchase. Also, there could be stiff charges
if you exceed your overdraft limit and the
bank has the right to ask for repayment of
the amount you are borrowing at any time.
Overpayments (overpayment facility)
An overpayment is an additional amount of
funding made available by a factor or
invoice discounter in excess of the normal
early payment percentage that they provide.
Information about overpayments.
P Prepayment, Early
Payment or Initial Payment
Also called "Early Payment" or "Initial
Payment". The funds provided to the client
against their invoices. Normally expressed
as a percentage e.g. 85% of the gross value.
Profit
The difference between income, (or
turnover), and costs for an accounting
period. In view of the "matching" principle,
it is not the same as cash, since revenue is
recognised when goods or services are
supplied (rather than when paid for by the
customer) and costs are incurred during the
time period to which they relate (rather
than when they are paid out in cash).
Proforma invoice
A sales invoice raised in respect of the
supply of goods or services that is required
to be paid on cash terms.
Purchase ledger
The accounting structure that holds details
of all the purchase invoices.
R
Recourse
An invoice finance facility where you have
chosen not to take advantage of protection
against bad debts. With a recourse factoring
or invoice discounting facility, if the
debtor fails to pay the factoring company or
invoice discounting company will withdraw
any prepayment that has been provided
against the invoice.
Revenue (also known as income)
The same as turnover or sales which is the
invoiced value of the goods and services
provided to customers. S
Sales invoice
An invoice raised by a seller in respect of
the sale of goods or services.
Sales ledger
The accounting structure that holds details
of all the sales invoices.
Secured Loan
A secured loan is a loan in which the
borrower pledges some asset (e.g. a car or
property) as collateral for the loan, which
then becomes a secured debt owed to the
creditor who gives the loan. The debt is
thus secured against the collateral — in the
event that the borrower defaults, the
creditor takes possession of the asset used
as collateral and may sell it to satisfy the
debt by regaining the amount originally lent
to the borrower.
Self Certification
A process whereby the borrower provides
confirmation themselves of their income,
rather than from an employer or company
accounts. Typically the lender will charge
higher rates of interest, or require a
larger deposit.
Stage payments, staged payments or
interim payments
Several invoices raised in respect of each
stage of a project e.g. 50% after stage 1 is
complete and 50% after stage 2.
Service charge
Service charge is one aspect of the fees
levied by a factor or discounter in respect
of the service provided. Normally expressed
as a percentage of the clients sales
turnover although in some cases it can be a
fixed fee. Small Firms Loan Guarantee
As a small to medium-sized enterprise, you
may have viable business plans that need
funding, and for which a loan would be
appropriate. However, you may be unable to
obtain a conventional loan because you do
not have assets to offer as security. The
Small Firms Loan Guarantee (SFLG) helps to
overcome this by providing lenders with a
government guarantee against default in
certain circumstances. The SFLG is a joint
venture between the Department for Business,
Enterprise and Regulatory Reform (BERR) and
a number of participating lenders. Find a
list of SFLG participating lenders on the
BERR website. Participating lenders
administer the eligibility criteria and make
all commercial decisions regarding
borrowing.
Subject to Status
A commonly used term meaning that the lender
will typically perform a credit check prior
to approving you for a loan or mortgage.
T Trade creditors
Amounts due to suppliers for goods and
services received but not yet paid for. They
are normally a current liability and are due
for payment within 12 months for the balance
sheet date.
Trade debtors
Amounts due from customers in respect of
goods and services supplied but not yet paid
for.
Trade finance
Trade Finance refers to a set of financial
products that can assist fund the import and
export of goods. This can include setting up
letters of credit and dealing with
documentation and bills of exchange.
Trust account
Where a client is using an invoice
discounting product a bank account is set up
by the provider (discounter) into which the
client banks all payments received from
debtors.
Turnover
The value of goods and services provided to
customers. Revenue or sales have the same
meaning.
U
Unsecured Loan
A loan that is not backed by collateral.
also sometimes called signature loan. An
unsecured loan is granted based upon your
ability to repay, usually judged by your
income. One benefit of an unsecured loan is
that you are not placing your home or assets
at risk. However it also means that you will
not be able to borrow as much money, and the
APR will be more severe than if you had
taken a secured loan. This is because the
lender is taking more of a risk in supplying
this type of loan product.
W Working capital
Current assets less current liabilities
(also called net current assets). |
