Download a copy of the Glossary of Key Terms

Advance Rate /IP% (Initial Prepayment%)  

  • The percentage that an Invoice Financier will advance against an invoice.  

Assignment of Debt 

  • Assignment of Debt related to the legal mechanism by which an Invoice Financier obtains the right to collect cash directly from your debtors to repay amounts that they have advanced to you.  

Availability  

  • The amount of cash available to you to draw from the Invoice Finance facility. It is usually calculated by multiplying the total eligible invoices by the advance rate, less charges.  

Bad Debt Protection  

  • This is a Credit Insurance which provides protection in the event of non-payment of invoices due to insolvency or protracted default of a debtor.  
  • Read more about Sonovate's bad debt protection here 

Credit Terms  

  • These are the payment terms that are given to customers and indicate when payment falls due. An example would be 30-day terms and these should be shown on invoices.  

Current Account/Funds In Use  

  • The total sum of all funds drawn down against the Sales Ledger  

Debenture  

  • A charge registered against the assets of the company  

Debtor Concentration  

  • The percentage value of individual debtors against the total Sales Ledger value   

Dilutions  

  • Items which can reduce the value of outstanding customer invoices e.g. credit notes, bad debts, disputes.  

Disapproved Debts (Disapprovals)  

  • Disapprovals are debts which an Invoice Financier will not provide funding against. Reasons vary but the typical ones are if the debt is more than 90 days old (aged), or if the debts are disputed by the debtor, or those debts which are known to be bad or irrecoverable (e.g. the customer in liquidation).  

Disbursements  

  • Invoice Financiers typically charge two standard fees, an agreed fee usually of a small percentage of  the invoice value, and a set interest fee on the monies draw down (i.e. advanced) to the borrower. Disbursements are additional fees and can be for paying in excess of the agreed prepayment, CHAPs fee or other small charges typically levied for things like postage, stationery and call charges etc to do with exceptional services involved in serving an invoice finance facility.  

Discount Margin  

  • The charge for borrowing money and is usually shown as a cost over base rate. It can be equated to the interest rate paid on an overdraft facility.  

Effective IP% (Initial Prepayment%)  

  • The percentage value of invoices available to advance.  

Entitlement (Benefit of)  

  • The funds due to the agency which is the difference between the IP% and the total Sales Ledger value.  

Export Factoring  

  • A factoring facility provided to a client who invoices customers abroad  

Facility/Funding Limit  

  • The maximum balance to which the current account can be drawn at any given time. This limit is often flexible by negotiation with the invoice finance company.  

High Involvement/Concentration Limits %  

  • Where a single debtor accounts for a high percentage of the total Sales Ledger. It can affect and restrict overall funding if the Invoice Financier is not happy to increase.   

Ineligibles

  • The value of debts which are disapproved (see above).  

Invoice Discounting  

  • A type of facility where an Invoice Financier provides finance secured against debtors but provides no credit management service.  

Invoice Factoring  

  • A facility where an Invoice Financier provides finance against invoices as well as providing a credit management service.  

Minimum Fee  

  • The fee contractually payable to the Invoice Financier irrespective of invoicing volumes i.e. a service fee is agreed but if the value of the agreed ‘Minimum’ is not reached or exceeded this fee will kick in.  

Non-Recourse Factoring  

  • The Invoice Financier provides full credit control, sales ledger management and collections service. Should the debtor not pay then the funder takes on the debt assuming there is sufficient credit insurance in place.  

Overpayment

  • This is a situation where the level of funding exceeds the agreed level of funding. 

Personal Guarantee  

  • Security taken personally against the directors of the business to be called upon in the event the funder is unable to collect funds from the Sales Ledger.  

Prepayment

  • The maximum percentage value of your invoices that will be available for you to draw in advance.  

Reassignment  

  • A debt previously assigned to an Invoice Financier which has been returned to you.  

Recourse Factoring  

  • Under a standard recourse factoring arrangement, the Invoice Financier will seek to recover from the client advances made to the client in respect of any debt that is not collected within a given time period (usually 90 days following the month of invoice).  

Recourse Period  

  • The period of time the Invoice Financier will fund an invoice after which the invoice values will be taken back through availability.  

Refactoring Charge  

  • A fee charged by an Invoice Financier when an invoice is recoursed back to the client. It is usually expressed as a percentage and then charged against the VAT inclusive invoice value.  

Sales Ledger  

  • The ledger that shows all the outstanding sales invoices that have been sent to customers and remain unpaid at any point in time.  

Service Fee  

  • The charge taken by an Invoice Financier for the administration of the facility. This is typically expressed as a percentage of sales and is likely to be higher for a full factoring service than for invoice discounting in view of the additional workload involved.  

Survey/Audit  

  • This is completed by an Invoice Financier most usually on ID facilities but also included in factoring too. It seeks to understand the operational infrastructure of the business and if it can support a facility securely.   

Take On Debts  

  • The value of the Sales Ledger at the point the new facility commences. This will form the basis of the initial advance with a new funder in the event of an Inter-factor transfer.  

 

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