Business Factors | Factoring Terminology Glossary

man looking in the large dictionary close upFactoring can play a crucial role in just about any business. This instrumental service that can help business owners eliminate cash flow problems for good is commonly not used. Why? Over 70% of business owners have no idea what factoring is, and the 30% that do know about factoring associate it with debt. We want business owners to have the right idea of what exactly factoring is.

We have put together a glossary of the most used terms in our factoring company to help you better understand us.

Let’s first start with defining factoring, then go into the finer details.

Factoring  – A business that provides funding to companies by financing their account receivables through selling unpaid invoices to an intermediary called a factoring company.

What does all of this mean? Browse through our glossary below to help you better understand how factoring can help your business grow larger than ever before.

Account Receivables – Money that is owed to your business. This is typically owed by customers that have an outstanding invoice, or charge, though your business that is typically due to be paid in a certain period of time.

Account Receivable Aging – The amount of time it takes to collect on a receivable. This may be used to determine rate of factoring accounts receivables and a debtor’s good standing.

Advance – In factoring, this term means the amount of money that the factoring company can give you up front. For example, we give up to 96% of your invoice upfront while other factoring companies can only provide up to 70%.  

Bankruptcy – A business that is unable to repay its debts. With factoring, we help you avoid bankruptcy by giving you money for your unpaid invoices.

Cash Flow – Money coming in and out of your business. Payments from customers and charges made by business owners to keep the business running.

Credit Protection – A facility that protects a business owner from potential loss or negligence of payment from a customer. For example, we give 100% credit protection on the funds advanced to you  in the case that your invoice doesn’t pay for customer credit reasons.

Factoring Company – A third-party financial services company that purchases current invoices from clients to give them cash right away. When invoices are due, the debtor pays the amount owed to the factoring company. Also referred to as the “funding source.”

Factoring Funding Limit – The maximum amount of money that your factoring company can provide to your account.

Invoice Factoring – Simply another way of referring to factoring. When a third-party business purchases your outstanding invoices so that you can get funding for your business faster.

Non Recourse Factoring – A form of factoring where the factoring company takes the credit risk on unpaid invoices due to customer credit problems and bankruptcy.

We hope that this glossary will help you better understand the benefits that factoring can provide to your business. If your business is struggling from cash flow problems or simply growing too rapidly, factoring is a great solution to make both you and your business successful.

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About the Author:

Robert Bernfeld started in the commercial finance industry in 1974. His early years included positions with Aetna Business Credit and Foothill Group. During the next thirty five years. Mr. Bernfeld established both equipment leasing and accounts receivable factoring companies.He partnered in founding Business Facilitators, Inc. in 1999. Mr Bernfeld graduated from the University of California, Riverside in 1974 and received his Juris Doctorate from Loyola University School of Law in 1977.

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