If you are a businessman, there are many things that you need to learn. The aspects of the business are extensive. Your knowledge will drive the company to success that is why you need to do your best to catch up especially with the myriad of terms you are working around.
If in this case you are confused about the terminologies surrounding factoring, take time to learn it first. Factoring is a type of business funding where a particular company finances accounts receivable by selling invoices to a factoring company. It is important that you understand the basics of factoring to be successful.
To help you, here are some terms that you will encounter on your factoring transactions:
Asset Based Loan (ABL)
This refers to a short-term loan that is obtained by the assets of the company like real estate, accounts receivable and inventory. It will be paid back as soon as the assets are converted into cash.
Accounts receivable (A/R)
A/R refers to the money that is owed to you by customers. By issuing an invoice, the company indicates when the customers need to pay for it. A/R is considered an asset because it is near cash.
The audit is a system of checks and balances. This is to ensure that the conditions of the factoring agreement are met.
This refers to debts that have limited chances of being collected.
This happens when two companies are suppliers and customers of each other. Financing this kind of accounts is challenging.
Credit limits are based on the customer’s credit rating. It is limit that a factor sets on each of the customers.
This refers to a commercial sale that permits a customer to pay thirty to sixty days after the invoices are submitted. The terms are noted by putting “Net” before the number of days.
This happens when an invoice is not approved for funding.
This happens when the customers do not pay an invoice because of the problem with the service or product.
This refers to a company that offers factoring services and obtains accounts receivable. One example is Factoring Hong Kong. The company will charge to administer, collect and process the invoices.
This refers to the fee of factoring company. The fee will most likely be a discount on the gross value of a particular invoice. The fee is often shown as a percentage and it will increase over time.
This refers to the amount of time from the purchasing of the invoice until the payment of the customer in full.
Lockbox is a bank management system. It is created to receive payments through the mail and automatically deposit it to an account immediately.
Rebate means funds that are sent to an account after the customer the customer pays the invoice – in full.
Verification is the process of verifying the validity of the client’s invoice with the customer, which is done by the factoring company.
If you are still confused, do not hesitate to be enlightened. There are many people who can help you. Do not conduct business blindly.