Business finance glossary of terms

Administration Charge

A charge by the factor on each invoice for the provision of the service.

Advance Billing

An invoice raised in advance of the provision of the service to which it relates.

Aged Debtors Ledger

A listing of outstanding balances per customer and split by either the month in which the respective invoices where raised or the dates they become due.

Agency Discounting

Also referred to as disclosed invoice discounting. Where customers are aware of the factors involvement, but the company maintain the responsibility of managing their sales ledger.

Approved Debtor / Balance

A customer approved by the factor for the advance of the agreed prepayment.

Asset Backed Lending

Lending by an institution where specific security is provided i.e. invoice finance, asset finance (HP and leasing), stock finance. Opposed to lending under a blanket charge or debenture.


The transfer of rights and benefit.

Associated Company

To a factor these include; Parent Companies, Subsidiary Companies, Companies with Common Shareholders, Companies with Common Directors, Franchisees.


An audit of the company's systems and debtors will be completed by the factor (usually every three months). Ensuring continuing satisfaction with their security position. May also be terminology as per 'survey'. i.e. initial survey of systems and debt prior to the factor making a formal offer of facility.


The amount remaining available to draw from the invoice finance facility, considering advances may already have been made.

BACS Payment

Bank Automated Clearing System. A payment made or received through this system. Payments will generally take c.3 days to reach the recipient.

Bad Debt

An outstanding debt that will not be paid, most often given the cessation of the company invoiced.

Ban on Assignment (BOA)

A clause within a supplier's terms of trade that specifically bans the assignment of the benefits or proceeds of the sale or contract.

Base Rate

Base funding percentage above which an additional margin is added by the respective lender. All UK clearing banks currently operate with the same base rate determined by the Bank of England.

CIS Certificate

Contractors within the construction industry are required by the Inland Revenue to deduct tax when paying sub-contractors. Only if the sub-contractor has the necessary CIS certification can the deduction be avoided. This is therefore of relevance to a factor, if invoices they have financed are liable to deduction by the customer (contractor). The factor's security being eroded. Very simply: * CIS 5 certificate permits gross payment by the customer * CIS 6 certificate permits payment gross to the company, but not to a third party, such as a factor. * CIS 4 requires deductions of tax to be made by the customer. If the nature of the company's business is subject to construction industry taxation then the particular certificate held will determine which factors are willing to be of assistance.


A company making use of a factor's service.


The ease of collecting in the full value of outstanding trade debts in the hypothetical situation that the company has ceased to trade. Affected by such issues as proof of delivery, disputes, contractual obligations etc.


Used in reference to the spread of customers by balances outstanding. Some factors will apply a concentration limit, whereby should a single debtor exceed an agreed percentage of the total gross sales ledger at any one time then the amount above this limit would become 'unapproved'.

Confidential Factoring

An alternative expression for confidential invoice discounting. Some factors are considering the provision of a true confidential factoring facility. That is, whereby the factor will complete the credit control responsibilities, albeit as if they were the company.

Confidential Invoice Discounting

An invoice finance facility where the factors involvement is not disclosed and therefore remains confidential from the company's customers. Also the credit management of the company remains its own responsibility.

Consignment Stock

Goods provided to a customer for which payment is required only once they have been sold on.

Constructive Delivery

Goods held for a customer that have already been invoiced but have not been delivered but stored on their behalf.

Contra Account

A customer that is also a supplier to the company.

Contractual Sales

Sales made within an over-riding supply agreement with the customer.

Control Account Summary

A monthly reconciliation of sales, credit note, receipts, adjustments completed by invoice discounting clients for the factor to check against their records.

Correspondent Factor

An overseas factor that is prepared to work with a UK factor to assist with the collection of export debts. The reverse can also be true, that is a UK factor being the correspondent factor.

CPE - Credit Protection Element

The proportion of the administration charge applied to cover the provision of bad debt protection.

Current Account (Invoice Finance)

An account maintained by the factor in the name of the client for the recording of all transactions between the factor and the client.


A 'blanket' charge over all business assets. Registered at Companies House.

Debtor Credit Limit

Individual customers may be given a credit limit by the factor above which balances will become unapproved.


At any given time a debtor book against which the factor is advancing against will contain an element of debt that is likely to be subject to credit notes, discount rebate or adjustments. The factor will wish to establish this as part of agreeing the prepayment percentage advance against the debtor ledger.

Directors Warranty

Director's indemnity giving liability in the event of the company breaching specific clauses within the invoice finance agreement. These usually relate to the fraudulent notification of debt.

Disclosed Invoice Discounting

An invoice finance facility that is disclosed to the customers of the company by way of a note on the company's invoices. Unlike factoring the credit management remains the responsibility of the company.

Discount Charge

Interest charge.

Discretionary Debtor Credit Limit

A minimum credit limit applied to all customers irrespective any individual credit search information.


A balance or invoice not accepted by the customer.

Doubtful Debt

A debt that has become doubtful that settlement will be made, given dispute or the viability of the customer.


A request to the factor to transfer available funds from the invoice finance account to the company's trading bank account.

Dunning Cycle

This is industry terminology for the process and timescale of reminder letters, phone calls etc used by the factor in the collection of outstanding invoices.


The sale of goods or services whereby the customer company invoiced is outside the UK. Note this may still be relevant if UK to UK supply but invoiced to an overseas registered company.

Export Factor

As correspondent factor. See above.


A supplier of factoring or invoice discounting.


An invoice finance facility including the provision of a credit management service by the factor on behalf of the company. A factor's involvement is disclosed to the customer.

Factors & Discounters Association

A members association acting on behalf of factors to promote their interests and the use of invoice finance.

Fixed Charge

A specific charge against a named asset (i.e. debtors). Registered at Companies House.

Fixed Fee

Occasionally a factor will proved a fixed monthly / annual administration charge, as opposed to a percentage fee.

Free Issue Material

Any material which is supplied by the customer to the company free of charge i.e. it will not feature in the trade creditor's ledger.

Funding Limit

A 'review' limit may be applied to an invoice finance facility. It may therefore be possible that this is lower than the total availability generated based on the company's outstanding debtors ledger and agreed prepayment percentage. Often arises where sales grow faster than anticipated. Formal approval by the factor should see this review limit increased.

Gross Turnover

Sales including VAT.

Ineligible Balance

A proportion of the sales ledger against which the factor will not provide finance against. See also Unapproved Debt.

Invoice Batch

The notification to the factor of a number of invoices.

Invoice Finance

The general term for either factoring or invoice discounting. A flexible and revolving finance facility, providing cash for working capital and other business uses by utilizing a company's outstanding, unpaid customer invoices as security for the lender.

Loan Subordination / Postponement

The agreement by directors or associated businesses of the company not to withdraw loan money invested in the company unless agreed to by the factor. The subordination of loans can often give the factor comfort to assume these as 'quasi' capital.

Maximum Extension Period

Period beyond the invoiced terms of trade at which, under a non recourse (insured) facility, the factor will settle the outstanding customer invoice. Note, not relevant where a customer dispute exists. Not all factors non recourse terms allow for this 'protracted default' cover.

Minimum Administration Charge

A minimum charge applied to the administration charge assessed annually. Should the percentage administration charge applied to gross turnover result in the payment of charges below the minimum charge then the company will be required to pay the difference.

Minimum Period

The minimum period of an invoice finance agreement. Usually 12 months. Termination of the agreement by the company before the minimum period expires will result in the factor applying an early termination penalty charge.

Net Worth

The net asset position of the company. Total company assets less total company liabilities. Capital account in the case of sole traders and partnerships.

Non Recourse

Without recourse to the company. An invoice finance facility provided where the company's debtors are insured by the factor. Debts are therefore at the factor's risk, within agreed credit limits, once notified to them. Company risk remains in the event of a customer dispute.


The advice of new sales invoices / values to the factor to update the sales ledger and availability.


An offer of facility by the factor to the company. Care in that some offers can still be subject to certain conditions such as a satisfactory survey, credit approval and are therefore little more than an indication of facility. The majority though are formal offers.

Open Item Sale Ledger

The accounting for of sales by which all outstandings, invoices and credit notes are detailed, as opposed to balances only.


The agreed payment by the factor to the company of funds, although above the funding limit or agreed prepayment percentage.

Preferential Creditor

Crown creditors. HMC&E (VAT) and Inland Revenue (PAYE)


Percentage advance of finance against the value of outstanding debtors.

Prime Debtor

Company's largest debtor by value of the total balance outstanding. As per concentration.

Proof of Delivery (POD)

An important document for the factor, let alone the company. Substantially assists 'collectability' (see above). Includes customer signed delivery note, carrier note, timesheet, weighbridge ticket etc.

Protracted Default

Some factors non recourse (insured) terms include for payment to the company of balances outstanding having reached an agreed period (Maximum Extension Period) still unpaid. This may be in the region of 120 - 180 days from the original due date for payment of the invoice. Does not include for issues of customer dispute.


Debtor balance. 'Receivables Finance' - US terminology for invoice finance.


Balancing of invoice discounting notifications. Provided monthly by the company to the factor. See Control Account Summary


The right of a factor to return invoices should the debt prove to be a bad or doubtful debt. The business risk is therefore that of the company.

Recourse Period

The period that invoices are financed for before being recoursed back to the company. This is typically 90 or 120 days. In practice this is held as a reserve against the current ledger rather than a physical return of funds.

Re-factoring fee

An additional charge applied by some factors, under a factoring facility to the value of invoices recoursed (see above). This is usually those older than 90 or 120 days.

Retention of Title (ROT)

A clause contained in terms and conditions of sale which reserves title to the goods until payment is received. This may include the right to the proceeds of the sale of the goods.

Retrospective Rebate

A volume discount given to customers.

Scheduled Order

An order received from a customer specifying delivery of various quantities over a given period.

Self Billing

An invoice raised by a customer, for payment by the customer to their supplier.

Settlement Discount

A rebate allowed against the gross value of an invoice for settlement within a given period.

Special Retention

An amount of the sales ledger set aside for which the factor will not permit finance against. Unlike an unapproved balance this does not relate to a specific sales ledger balance, but another reason specified by the factor.

Stage Payment

The payment for a particular order in stages. i.e. 30% on order, 60% on delivery 10% after 30 days.


An audit is very often complete by the factor of the company's systems and debtors before approving the provision and terms of an invoice finance facility. Usually completed at the premises of the company.

Take on

The commencement of the invoice finance facility.

Take on Balance

The sales ledger balance at the commencement of the facility against which the factor will provide finance.

Termination Period

Period of notice required to be given by the company to the factor as notice of their intent to cease their invoice finance agreement. Usually subject to an initial minimum period of the agreement.

Trade Creditor

A supplier to the company with who balances are outstanding under credit payment terms for settlement of outstanding invoices.

Trade Debtor

A business customer of the company with who balances are outstanding under credit payment terms for settlement of outstanding invoices.

Transfer Charge

The charge made for drawing funds from your invoice finance facility to the company's trading account.

Trust Account

The invoice finance 'bank' account

Unapproved Debt

Trade debt that is not approved for funding by the factor. i.e. the prepayment is not permitted against this element of debt.

Unprocessed Balances

The total value of any invoice notifications still waiting to be processed by the factor.

Value Date

The date receipts are considered accepted by the factor for the purposes of calculating interest charges.

Waiver of Book Debts

A factor will require the agreement of any existing charge holder (i.e. company's bankers) to waive their interest in respect of debtors.

Work In Progress

Work undertaken for a customer on an ongoing basis where invoices are raised for measured or estimated work completed to date.