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Factoring & Invoice Discounting factorbility

Learn about what Invoice Finance companies are looking for


Promotional Allowances

Definition

An allowance or contribution made by a Client to its Customer for the purposes of advertising or promoting their products. It can be made by way of cash or credit note, and is usually a finite sum not a percentage.

Factoring Companies typical Concerns

The Customer may retain the value of the allowance from their payment or factored Invoices and may well have the legal right of off-set in the event of the Clients demise.

Identification

The Factoring or Invoice Discounting Company will review the Cashbook for payments to Customers, and review Credit Notes for large or round sum values. Factoring or Invoice Discounting Companies will ask the questions like; are you asked to contribute to your Customers costs of promotion or advertising of your products? This is quite coming in certain sectors.

Action a factoring company may wish to take

If of significant value, then the Factoring or Invoice Discounting Company may well set up a reserve. The Factoring or Invoice Discounting will take into consideration that the allowance will probably be linked to issue of a catalogue on a seasonal frequency.

 Categories

Advance BillingAn Invoice raised legitimately by a company in the normal course of business in advance of the provision of the service to which it pertains (also see Deposits and Pre-Invoicing).

Pro Forma Invoices are a form of Advance Billing, generally for goods rather than services, and generally for the purpose of obtaining payment up front. Some examples would be: Rent Storage, Hire Charges Maintenance Charges.

AgentSomeone who acts on behalf of another in a selling capacity without taking title to the goods or services.
Associated Companies or Staff SalesAny sale made by the Client to any other company or individual with whom there is a relationship additional to that of vendor/vendee. Examples of these are: Parent Companies, Subsidiary Companies, Associate Companies, Companies with common Shareholders, Companies with common Directors, Franchisees Employees (Staff, Representatives, Directors, Shareholders) Other, Individuals (i.e. Non-commercial sales).
Back-UpsCopies of Clients Sales Ledger Records, both manual and computerised, maintained in such a way as to provide a source of replication in the event of destruction of the original. Copies of Clients Sales Ledger Records, both manual and computerised, maintained in such a way as to provide a source of replication in the event of destruction of the original.
Ban On AssignmentA clause within a Debtors Terms of Purchase or Contract, which specifically bans the assignment of the benefits or proceeds of the sale or Contract. Often referred to in abbreviated form as BOA.
Bills of ExchangeA documentary instrument of payment whereby the payer undertakes to pay a fixed sum on a set date to the payee. It is always held by the payee for presentation to the appropriate Bank for payment. It is not a guarantee of payment, funds must be available at the payer Bank. Often abbreviated to BOE.
Capital Items/InstallationGenerally items of large value from which purchasers would derive use for a period greater than one year (as opposed to Consumables or Expendables). These may involve an element of Installation by the Client, and may be financed by a third party e.g. a Hire Purchase or Leasing Company.
Cash SalesA sale made on the basis of delivery after or on receipt of payment. Also known as Cash on Delivery terms (C.O.D.).
Common DebtorsThese are Debtors which feature on both a Notified ledger and on a Non-Notified ledger. This may be for a separate division, a different product, or for Customers on different terms to normal e.g. C.O.D.
ConcentrationAny debtor balance, which represents a significant proportion of the total debts outstanding.
Consignment StockGoods provided to the Customer for which payment is required only once they have been sold on. This generally requires some accounting by the Customer to the Client for stock held, but this can be carried out by the Clients staff. Consignment Stock can also be received by the Client from the Supplier.
Constructive DeliveryThis is where a Client holds goods for which the Customer has already been invoiced i.e. they have not been delivered. This may be at the request of the Customer, or simply a device by the Client to obtain early payment from them (or from the Factoring or Invoice Discounting Company). This is also known as Bill and Hold.
Contractual SalesSales, which are made according to a formal written Contract. This will be signed by both parties to the Contract i.e. The Client and the Customer.
Credit InsuranceAn insurance policy that covers the Client against Customer bad debts. This may include cover on Work-in-Progress, Exports, and Protracted Default (non-payment after a set period).
Crown Right of Set-offCrown Agencies have a legal right to set-off monies due to them such as VAT, PAYE/NI and Corporation Tax, against monies owed by them. Crown Agencies include: Government Ministries e.g. MOD Property Services Agency (PSA) HMSO Government Departments e.g. DHSS, DOT Inland Revenue Customs and Excise
DepositsAny monies taken from Customers by the Client in advance of the work being carried out. This amount may be for part, or all, of the job. Otherwise known as Advance Payments or Prepayments (also Advance Billings).
DilutionThe amount (or percentage) by which any debt (or debtor book) has or needs to be written down in order for the reduced value to represent the collectable value a Factoring or Invoice Discounting Company can rely on.
Direct DeliveriesDeliveries of goods direct from Supplier to Customer i.e. the Client does not handle the goods. Otherwise known as Drop Shipments.
Double HeadersThis is where one Client trades with another Client.
ExportsAny sale made to a Customer domiciled outside of the United Kingdom.
Extended TermsSales on terms that allow the Customer to take more than the standard credit period.
Forward DatingAny Invoice dated later than the delivery of the goods. The purpose would normally be to give the Customer longer credit without having to amend the standard term.
Free Issue MaterialAny material, which is supplied by the Customer to the Client free of charge i.e. it will not feature in the Purchase Ledger nor be identified as Two-Way Trading. Often referred to in abbreviated form as FIM. This will also include goods provided for the purpose of a service to be performed e.g. material for dyeing or metal goods for coating.
Guarantees and WarrantiesA Contractual obligation to replace, rectify, or refund goods that become faulty within a set period (anything from 14 days to a lifetime).
Letters of CreditThis is an instrument commonly used by overseas Suppliers to obtain a guarantee of payment from the Client. It will be raised by the Client and drawn on their bank, effectively utilising a part of their pre-arranged overall facility.
Partial BillingInvoicing for goods delivered under an Order or Contract, which requires further deliveries before being fulfilled. This can be in respect of services part performed, and is also known as Stage Invoicing, Stage Payments, or Progress Billing (also see Scheduled Orders).
Pre-InvoicingAny Invoice, which is raised before delivery of goods or completion of services (but see also Deposits, Partial Billing, and Advance Billing). These will be raised either to obtain early payment from the Customer, or simply to obtain early payment from the Factoring or Invoice Discounting Company.
Prior LienA right to first call on the goods or proceeds of sale of the goods to the value of amounts owing to the holder of the goods. Typical Prior Lien Holders are Warehousemen, Carriers, and Agents.
Product Liability InsuranceInsurance against any liability in the form of damages or compensation arising from, or in connection with, the Clients products or services e.g. sickness as a result of eating contaminated food, or injury as a result of faulty equipment.
Promotional AllowancesAn allowance or contribution made by a Client to its Customer for the purposes of advertising or promoting their products. It can be made by way of cash or credit note, and is usually a finite sum not a percentage.
Reservation of TitleA clause contained in the Terms and Conditions of Sale (or Contract) which reserves the vendor title to the goods until payment is received. This may include the right to the proceeds of the sale of the goods. Also called Reservation Of Property or Retention Of Title, and abbreviated to ROT or ROP.
RetentionsAny amount, which the Customer can rightfully withhold from the initial payment. This may be Retention for ensuring the quality of the work, such as in the Construction Industry, or as required by law, where the Client supplies Contract labour without producing a 714C or 714P certificate. The former are generally 5% or 10%, and are payable up to a year after the original invoice; the latter are always for the prevailing basic rate of Income Tax (currently 25%), and will never be paid.
Retrospective DiscountAny discount which is given (or offered) subsequent to the raising of the invoice, or invoices, to which it relates. There are two main types:

- Settlement Discount, which is a discount offered for prompt payment
- Volume Discount, which is given once certain turnovers, or volumes, have been achieved (also known as Overrider Discount).

Sale or ReturnA sale made whereby the Client guarantees to take back any goods that the Customer does not sell. This guarantee can be in writing (on the Customer Purchase Order, Sales Catalogue, or other Contract), verbal, or simply industry practice. Often referred to in abbreviated form as SOR.
SamplesGoods, which are provided to the Customer in order to demonstrate their quality or saleability for the purposes of generating future sales. Also known as Sale On Approval and very similar to Sale or Return.
Scheduled OrdersAny order, which specifies more than one delivery, spread over a period of time. A variation of this is the Blanket Order, which will not specify the delivery dates, or even, in some cases, the quantity of goods required. In the latter case, there are likely to be Call-Offs in the form of sub-orders specifying quantities and delivery dates.
Self-BillingWhere the Customer raises its own Invoice for supplies made to it, and does not acknowledge any other invoice.
Service ChargesA charge made for interest on an overdue debt, generally in accordance with the Clients Terms and Conditions of Sale.
Sundry SalesA charge for anything other than the normal product or service of the Client. Also called Miscellaneous Sales, these could consist of:

- Sales of Fixed Assets (vehicles, plant, fixtures & fitting etc)
- Management Charges
- Rent (and other property associated costs)
- Default Charges (cancellation of Order, or breach of Contract)
- Storage Charges

Tooling InvoicesInvoices for any items (Tools), which are designed to enable production of finished goods. They can be raised on completion of the Tool, as part of Stage Invoicing, or on the final invoice for the whole production job. Examples of tooling are Moulds, Dies, Artwork, Jigs and Patterns
Trust ReceiptsThis is a document enabling title to goods to be retained despite relinquishing physical possession of them, and will, therefore, generally retain title under Letters Of Credit upon release of documents (and thereby the goods), and under Stock Confirming Agreements, whereby the goods are financed by a third party.
Two-way TradingThis is where a Customer of a Client is also a Supplier i.e. the same corporate body will feature on both the Sales Ledger and the Purchase Ledger. Otherwise known as Contra Trading or simply Contras.
Unallocated CashAny cash which has been posted to a Clients Sales Ledger which has not been specifically allocated to individual invoices, including cash which has been posted to a dump account (Cash Suspense, Unallocated Cash or Unallocated Credit).