Definitions of Common Factoring Terms

ACCOUNT DEBTOR

A customer that owes a supplier for product or services rendered.

 

ACCOUNTS RECEIVABLE

Trade credits; an amount owed by an account debtor by the act of granting short term unsecured credit in lieu of cash for goods or services. Considered a liquid asset on the balance sheet and generally expected to be paid in less than ninety days.

 

CHARGE-BACK

An amount of money that is owed to the factor and is deducted or Charged-Back from the reserve or availability of the line due to an agreed upon non-payment by debtor clause in the Factors contract.

 

CREDIT

A privilege granted for the purpose of extending time to make payment on a debt.

 

DILUTION

The amount of risk associated with collection of the accounts receivable. It can include returns, chargebacks, trade allowances, concentrations, slow pay, bad debt and other perceived risk.

 

FACTOR

Someone who purchases accounts receivable. FACTORING - The act of selling accounts receivable.

 

FACTORS ADVANCE

The initial amount of money a factor is willing to provide against accounts receivable.

 

FACTORS COMMISSION

The amount paid to the Factor for Services.

 

FACTORS FEE

Generally a combination of the Factor's Commission and the amount of money the Factor Charges for the Advances.

 

FACTORS RESERVE

The amount held back from the funding to offset dilution and other perceived risk.

 

FACTORS SERVICES

Credit Analysis, Credit Guarantees and Collection Management.

 

RESERVE RELEASE

The amount of money released from the Factor's Reserve once payment has been received and credited. The Reserve Release will be less any charge-back or fees associated with the services.

 

WITH RECOURSE

The Factor grants a limited amount of time for the Account Debtor to pay. The trade credit is ultimately owed or reverts back to the Client for payment if not paid for within a pre-established time beyond Terms. This is a loan and not an outright purchase of accounts receivable.

 

WITHOUT RECOURSE

The Factor guarantees the credit of the Account Debtor. The Client has no liability of the debt if the payment is not made due to credit reasons.

 

TERMS

A negotiated amount of time allowed to pay a debt.

• Net 10 - 10 days from invoice to pay for goods.
• Net 30 - 30 days from invoice to pay for goods.
• R.O.G. - Receipt of Goods; Payment due upon receipt of goods.
• Net 10/ROG - Payment due 10 days from receipt of goods.
• 8%/10EOM - Take an 8% discount if paid by the 10th of the following month. 2%/10 - Take a 2% discount if paid with-in 10 days.
• C.O.D. - Cash on Delivery
• C.I.A. - Cash In Advance of Delivery.
• 30/60/90 - Payments due 1/3 in 30 days, 2nd/3 in 60 days and final 3rd in 90 days.

 

TRADE CREDIT

The extension of credit within a given trade.