Jargon Buster
Make sense of the terminology
The process of Invoice Finance is simple and straightforward, but you are likely to come across a great deal of financial jargon along the way. If not explained clearly, it can seem very confusing. Here, we highlight and explain some of the key terms that you may not be familiar with. You will also benefit from talking to one of our Client Managers to go through your needs and for a simpler explanation of how Invoice Finance can work for your business.
Glossary of commonly used Invoice Finance terms
Advance rate
The agreed percentage of eligible debt made available for your business to draw down.
Annual minimum fee
This fee is calculated as a percentage of the company’s turnover and is only payable if the company’s turnover drops beyond an amount agreed at the contract stage.
Approved debt
A debt which has been accepted by the Invoice Finance company as being eligible for prepayment.
Assets
Anything owned by your company that has a monetary value, including debtors.
Availability of funds
The amount of cash which is available for you to draw each day, as required.
BACS
BACS means Bankers Automated Clearing System. Funds may be transferred from the Invoice Finance company to your own bank account via this system in three working days.
CHAPS
CHAPS means Clearing House Automated Payment System (telegraphic transfer). Funds can be processed via this payment system on the same day.
Cash flow
The difference between cash available at the beginning and end of a company’s accounting period.
Contra-trading
A trading relationship in which you might buy from and sell to the same customer. This may result in some form of offset to establish the balance of what is owed and by whom.
Credit Insurance
This provides a level of bad debt protection against non payment by your customers under certain specific circumstances.
Credit limit
Your own limits are the amount of credit that you are prepared to extend to any of your customers. An Invoice Finance company's funding limits are the levels of credit applied to each of your customers up to which they are prepared to advance money. These limits may not necessarily be the same.
Current account
The account which shows the financial obligation between the Invoice Finance company and you.
Current assets
Examples include cash, debtors and stock; anything that you would expect to convert into cash within twelve months of your balance sheet date.
Disapproved debts
Debts against which a finance company will not provide funding.
Discount charge
The rate of interest that is payable on funds outstanding. This is usually expressed as a percentage over bank base lending rate and calculated on a daily basis.
Export debts
Debts arising from the sale of goods or services to an overseas buyer. These may be invoiced in pounds or another currency.
Fixed assets
Assets held for use by the business rather than for sale or conversion into cash, eg fixtures and fittings and buildings.
Facility limit
The maximum balance to which the current account can be drawn at any given time. This limit is often negotiated.
IP / Initial Pre-Payment
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 Finance company which has been returned to you.
Reconciliation
A process of matching the balance of your sales ledger to the balance recorded by the Invoice Finance company at the same point in time; usually at the end of each month.
Recourse
Where the debt is not insured and if your customer does not pay, you or your company will be liable for the debt.
Re-factoring fee
An additional charge made to cover the cost of collecting debts which have aged beyond the agreed credit period. This charge is usually expressed as a percentage of the amount outstanding.
Service fee
The charge levied by an Invoice Finance company for the administration of your account. This is typically expressed as a percentage of sales.
Take-on debts
The value of the ledger at the point when the facility commences.
Working capital
Current assets less current liabilities, representing the investment required to finance stock, debtors and work in progress.
