Glossary Of Principal Factoring Terms

  • Customer: the customer of the factor or invoice discounter which enters into an arrangement to factor or discount debts.
  •  Debtor: a trade debtor of the customer.
  • Debts: the debts due by a debtor to the customer
  • Factor: a provider of factoring and invoice discounting services.
  • Factored turnoverthe total value of debts assigned by customers of factoring or invoice discounting businesses.
  • Factoring: an arrangement whereby a customer assigns its debts to a factor for cash.  Additionally, the factor will provide an administrative sales ledger service to the customer including sales ledger accounting, credit control and collection.
  • Invoice discounting:  an arrangement similar to recourse factoring whereby the customer retains responsibility for administering its sales ledger, maintaining books of account, and collecting outstanding debtors for the account of the invoice discounter.  The debtor is usually unaware of the arrangement, described as    confidential    invoice discounting. If the debtor has been notified of the arrangement this is described as disclosed invoice discounting.
  • Non-recourse factoring: a factoring arrangement that includes the provision of a factoring service with the additional benefit to the customer of protection, up to specified limits, by the factor against non-payment by debtors of the customer.
  • Recourse factoring: a factoring arrangement that does not include the provision to the customer of protection by the factor against non-payment by debtors of the customer such that the factor has recourse to the customer in the event of default by debtors.
  • Sales finance: the generic term which the Company applies to its service arrangements and which encompasses recourse factoring, invoice discounting and any hybrid service of the two. It does not include non-recourse arrangements which would require the Company to provide protection against bad debts to the customer. Sales finance provides a tailored agreement whereby the level of sales ledger administration, credit control and collection is varied according to the needs of the customer and with respect to the individual trading relationship maintained with each debtor. The service may or may not require the debtors to be aware of the arrangements and therefore will fall broadly into one of two types, disclosed sales finance or undisclosed sales finance.

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Factoring, in one form or another, has been around for thousands of years. Factoring releases the funds locked up in outstanding sales invoices, is a sure-fire way to turn your outstanding debtors into cash. Factoring is frequently used by businesses to improve cash flow. It can also be used to decrease administration expenses.
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