Invoice Finance Jargon Buster

Asset Finance: Common Terms & Definitions

ABL

ABL is an abbreviation for Asset Based Lending.

Accounts receivable

Accounts receivable is the amount of outstanding money due from raised invoices.

Advance rate

The advance rate is the percentage of each eligible invoice that is released to you and is agreed on upfront when the facility is arranged.

Aged creditor report

The aged creditor report is a document that summarises the outstanding balance due to each of your debtors.

Aged debtor report

This document is designed to show the balance due to you from your outstanding invoices. Aged debtor reports are usually sorted by either the invoice date or the due date of the debt.

Approved debt

Approved debt is the term given to the invoices due to you that the lender has accepted are eligible for funding.

Assignment of debt

Assignment of debt effectively transfers the rights to pay your debt to your invoice finance provider.

BACS

BACS (Banking Automated Payment System) is the payment method used by most invoice finance providers. BACS payments usually take around three days to hit your account.

Bad debt

Bad debt is a term used to describe debt that is in default due to late or non-payment. This can range from payments that are a few days late right through to insolvencies of debtors.

CHOC

CHOC (Customer Handles Own Credit) is a hybrid of invoice finance and discounting whereby the facility is disclosed and the lender issues statements, but credit is controlled by the client. The lender will usually have step-in rights should the payment take longer than expected to arrive.

Concentration limits

The concentration limit is the maximum amount of debt that the lender is willing to finance for a certain subset of a client’s approved debts. The subset could be broken down into a group of clients, an industry or a single customer and is usually presented as a percentage of the total facility amount.

Credit limits

The credit limit is the amount of debt that the funder is willing to offer to a single customer. The figure is usually expressed as an amount of money and is based on their trading and credit histories.

Debenture

A debenture is a fixed and floating charge over the assets of a company. This is usually required by invoice finance providers.

Debtors

Debtors are the individuals or companies that owe money to you.

Disapproved debts

Disapproved debts are the outstanding invoices raised that the lender is unwilling to release funds against.

Extended terms

Payment terms offered to customers of more than 30 days.

Funding period

The funding period is used to describe the amount of time that the funder will finance an invoice. This usually reflects the agreed payment terms in the invoice.

Funds in use

This is used to describe the amount of money outstanding on the invoice finance facility.

Notice period

The period of notice needed to end the invoice finance agreement for either the borrower or lender.

Purchase ledger

The record of purchases made, what has been paid and how much you still owe.

Reassignment

Reassignment is the transfer of ownership of the debt from the invoicing company to the invoice finance provider.

Reconciliation

Reconciliation is the process of cross-checking the sales ledger to the records of the invoice finance provider to ensure the figures match. It is a method of making sure the facility is running accurately and your systems are in sync with the lenders.

Recourse factoring

Under recourse factoring agreements, the lender will seek payment for any unpaid debts directly from the client’s advances.

Remittance advice

Remittance advice is a document which is sent from the customer to confirm that the invoice has either been paid or will be paid in the next payment run.

Sales invoice

A sales invoice is a formal request for payment due as a result of goods or services rendered.

Sales ledger

A sales ledger is the record of sales made, monies owed to you and the money already received.

Service charge

The charge made by the financier for providing the facility. The charge is usually levied as either a percentage of the facility or as a fixed fee.

Trust account

A trust account is a bank account which is set up in the name of the borrower but holds the funds in trust for the invoice finance provider. The borrower usually has no access to the account, despite it being held in their name.