Glossary of Finance Terminology
Assignement for Consideration
A technical phrase referring to the transfer of an unlimited
interest in property, such as an insurance policy, in exchange
for something of value; typically cash or debt instruments.
A floating lien. An abstract is a filing that allows an
individual or company to place lenders or appropriate concerns
on notice that a debt is due but has not been satisfied.
A collection of claims or invoices against a particular
customer for goods or services delivered.
The person, business or organization responsible for paying
an invoice. In the case of factoring, the account debtor
is the customer whose name is on the invoice sold to the
Accounts Receivable Aging Schedule
A classification process, as reported on a schedule by time
intervals (30 day increments & current), 30 days, 60
days, 90 days, 90+ days, used to analyze the amount of money
owed to a business by its customers. It is used by credit
grantors (such as banks and factors) to determine the probability
of collection, as it shows patterns of payment and delinquency.
"A" Credit Customers:
Consumers with impeccable credit, who can obtain a loan
from traditional lenders.
Language in an agreement that secures payments for the full
term of the obligation or note.
The amount of money a company owes for goods and services
it has received; any outstanding debt that a company has.
A collection of a company's outstanding invoices (invoices
which have not yet been paid by the company's customers).
In the factoring industry the accounts receivable is what
a company sells to a factor.
Accounts Receivable Aging Report:
A business report showing how long accounts receivables
from each customer have been outstanding. It indicates the
receivables that are current and the amounts outstanding
for 30 days, 60 days and so forth.
A form of financing which uses accounts receivable as collateral
for a loan. This is different than factoring in that the
party providing the financing does not own the invoice and
is not responsible for collecting the debt.
Form sent to the client's customer account debtors to confirm
that the invoice the client is selling does exist and that
they will remit payment directly to factor.
The percentage of an invoice's face value which a factor
pays upon its purchase
The gradual, systematic payment of a debt, such as a mortgage
or other loan, in installments of principal and interest
for a definite time, so that at the end of that time, the
debt will have been paid in full.
A document filed with a U.S. state by the founders of a
corporation. After approving the articles the state issues
a Certificate of Incorporation; the two documents together
become the Charter of Incorporation.
Anything having commercial or exchange value that is owned
by a business, institution or individual. A business' assets
might include its real estate, equipment inventory, intellectual
assets such as copyrights or trademarks, and accounts receivable.
A form of lending where the factor uses collateral, such
as equipment or inventory, as security against the loan.
The ability to assign (or sell) an income stream to another
individual or business.
The person or business entity who is given, obtains, or
buys the right to an asset.
The transfer of the rights, title or interest of any debt
instrument that is properly owned by another party.
The person giving or selling an asset, and subsequently,
forfeiting rights to that asset.
An individual who is authorized to execute a binding document
on behalf of a corporation, partnership or other legal entity.
through "D" Credit Customers:
These consumers have less than perfect to bad credit and
usually cannot qualify for traditional financing. Also called
sub-prime credit customers.
Any debt that is delinquent and has been written off as
A financial statement that shows a business' current financial
condition, with assets on the left side and liabilities
and net worth on the right side.
The balance of principal that is due and owing in its entirety
at a specified point in time, but in any event, less than
the time required to fully amortize the debt.
A state of insolvency of an individual or organization.
The inability to pay debts.
The person or party entitled to receive the benefits, or
proceeds, of the life insurance policy upon the death of
the insured person.
A shipping document which gives instructions to the company
transporting the goods.
A document used to transfer the title of certain goods from
seller to buyer.
A legal transfer of ownership of all accounts receivable,
both present and future as collateral for funding.
The degree of operation where costs equal revenue.
An individual who pairs clients in need of cash with appropriate
financial entities including factors.
Cash flow instruments that are paid to a business by another
business or government.
The amount of funds remaining in a business after all debts
have been satisfied; i.e. assets over liabilities.
The flow of cash through a business or household. In business
terms, cash flow involves the flow of cash into a company
in the form of revenues, and out of the company in the form
Professional whose primary purpose is to unite income stream
sellers with funding sources. They may operate as referral
sources or as the primary liaison for cash flow transactions.
The buying, selling, and brokering of privately held debt
in the secondary marketplace; the marketplace where businesses
and individuals get help managing their cash flow needs.
Future payment or series of payments. Also called a debt
instrument or income stream.
A cash flow professional who brokers cash flow transactions
or buys cash flow instruments.
Occurs whenever a funding source pays cash to an individual
or business in exchange for an income stream.
A Federal Bankruptcy Act where a debtor can maintain control
of its business and operations, under court supervision,
as long as current debts remain paid.
Affords businesses an opportunity to reorganize by restructuring
debt and negotiating payment schedules.
A mortgage on personal property, given to secure a debt.
Typically used in the sale of a business. Also called a
Something of value (land, a home, a car, etc.) that is pledged
as security to ensure the payment of a debt. Collateral
is promised to a lender until a loan is repaid. If the borrower
defaults, the lender has the right, by law, to seize the
Based Income Streams:
Cash flow instruments that are secured by collateral.
Refers to the funding source's ability to collect future
income stream payments once they are purchased.
Insurance against large losses from the uncollectability
of accounts receivable.
Fee paid to a broker for executing or referring a cash flow
The amount of one client's accounts receivable due from
a single customer. A large concentration for a single customer
is considered high risk.
An arrangement between a client and a factor in which the
factoring relationship is not disclosed to the client's
Based Income Streams:
Cash flows in which the party that owes payments is a consumer,
a private individual.
Based Income Streams:
Cash flows in which the recipient is not necessarily legally
entitled to receive payments, or in which the amount of
the payment is uncertain or contingent upon outside factors.
The process of converting a qualified prospect into an active
A legal entity, chartered by a U.S. state or the federal
government, and separate and distinct from the persons who
own it. It is regarded by the courts as an artificial person;
it may own property, incur debts, sue or be sued.
One who is owed payments on a debt by a debtor.
The business or organization that owes money on an invoice
purchased by the factor; i.e. the client's customers, also
known as account debtors.
Doing Business As
Used to designate the name of a business as it is commonly
known rather than its legal name, the name of the owner,
An abbreviation for "days beyond terms," which
indicates how many days past the due date an invoice is
Future payment or series of payments, or a debt that one
party owes to another party. Also known as income streams
or cash flow instruments.
One who owes something and makes payments to a creditor.
The omission or failure to perform or fulfill a legal duty,
obligation, or promise (i.e. to pay a debt).
A document that proves delivery and invoicing of a shipment.
Mail sent to large numbers of potential customers advertising
a product or service and soliciting orders.
Arrangement whereby a factor purchases an account(s) receivable
from a business (your client) at a discount to the face
value of that receivable. The factor earns a fee based on
the number of days that the receivable remains unpaid, i.e.,
the longer the receivable remains unpaid, the larger the
The amount earned by a factor on each invoice purchased.
It is based on the period of time the invoice remains outstanding
(unpaid) and is set forth and agreed upon by both parties
in the Discount Schedule.
The percentage of the face value of an invoice that a factor
holds as its fee.
Exhaustive research on a transaction, income stream, client,
and/or payor. Due diligence may involve credit checks, appraisals,
UCC searches, lien searches, or on-site visits with clients.
The value or interest an owner has in property over and
above any indebtedness owed on the property.
The system by which money documents, personal property,
or real property is held in trust for another party by a
disinterested third party until the terms and conditions
of the escrow instructions are completed or terminated.
The current principal balance on an income stream.
A funding source that specializes in funding accounts receivable.
The purchase of a business' accounts receivable at a discount.
A legal statement filed when a person uses a name other
than his or her own to operate a business.
A legal proceeding in court to seize property given as security
for a debt that is in default.
An individual investor or an investment company that buys
Based Income Streams:
Cash flows paid by a government entity, either directly
or through an insurance company.
Sales that allow the return of merchandise purchased at
the customer's discretion.
Holder in Due Course
Borrowing funds from a lender, investing those funds in
a debt instrument, and giving the lender a security interest
in the debt instrument as the collateral for the loan.
A future payment or series of payments, or a debt that one
party owes to another party. Also known as a debt instrument
or cash flow instrument.
A promise to compensate for loss or damage sustained as
a result of a stated set of circumstances.
Savings and loan associations, local and regional banks,
mortgage companies, finance companies, and commercial lenders.
Based Income Streams:
Cash flows stemming from insurance companies and paid to
individuals or businesses.
Something that has value but is not a tangible asset, for
example, a trademark, copyright, patent, or trade secret.
A measure of how secure a creditor's position is and how
likely the creditor is to recoup all of his or her money
in the event of a foreclosure.
A legal debt instrument which indicates the amount due from
a customer to pay for delivered goods orservices. Invoices
may be traded or sold.
A business entity established for a specific task, operation,
A piece of information of possible use in the search for
a prospective client.
The ratio of debt to total assets/ Ability to increase projected
return on investment.
The amount owed by a business or an individual, excluding
ownership equity. There are two types of liabilities: Current
and Long-term. Current are debts which must be paid within
one year (such as accounts receivable, dividends, notes
payable, bank loans payable, taxes payable, wages and long-term
debt due within one year). Long term liabilities, also called
funded debt, are debts that are not due until after a year's
A creditor's claim against property. When the debt is paid,
the lien is removed. Liens may also be granted by courts
to satisfy judgments.
A search through public records on file in both the County
Clerk's and Secretary of State's offices for any claims
(pledges) against the property of a business (such as their
accounts receivable) or an individual. An example would
be if a taxing authority has a lien against the accounts
receivable of a business due to taxes owed.
Line of Credit
The amount of credit that may be extended to a borrower
by a lender. This type of arrangement gives a borrower more
flexibility in planning for operating expenses.
A form of business structure designed to combine the best
of corporate and partnership attributes into one entity.
The ability to convert assets into cash (or cash equivalent)
without significant loss. If a business has good liquidity
they will be able to meet their maturing obligations promptly,
earn trade discounts, benefit from a good credit rating,
A measure of how heavily mortgaged a property is and how
likely the owner is to default on his or her debts.
Consumers who may have had some slow pay problems, but generally
pay their bills.
The price at which a ready, willing, and informed person
would buy something; the price property would command in
the current market.
The process of identifying and communicating with qualified
Individual who has been certified and designated by the
American Cash Flow Association to work with Diversified
Cash Flow Specialists.
A lien on property (such as a building or an invoice) given
by statute to a worker or contractor who performs work or
furnishes materials for the improvement of that property,
until compensation is made for the improvement. Until that
lien is satisfied, it usually takes precedence over all
A written instrument that creates a lien by pledging real
property as security for a debt.
A situation where income is less than expenses. Prolonged
negative cash flow can lead to the failure of a business.
A written promise to pay a named amount to a particular
company or business by a certain date.
A document notifying the owner of real property that materials
or services are being furnished to his real property, putting
him on notice that the one sending it will look to have
a lien against the real property if those materials or services
are not paid for.
Process whereby the factor lets an account debtor (your
client's customer) know that an invoice(s) has been purchased
from your client, and that the debtor is to pay the factor
An aspect of confidential factoring where the customers
are not notified of the client's arrangement with the factor.
A type of factoring where the factor assumes complete responsibility
for collection of debt. If the debt is not collected due
to the financial inability of the customer, the factor assumes
A type of financing in which the seller of a tangible item
accepts a promissory note as a portion of the purchase price.
Also called seller financing.
The cost of doing business unrelated to production or sale
of goods or services. Office rent, for instance, is an overhead
expense. It remains unchanged no matter how much a company
A contract between two or more people in a joint business
venture who agree to pool their funds and/or talents and
share in the profits and losses of the enterprise. General
partners are those who are responsible for the day-to-day
management of activities, whose individual acts are binding
on all the partners, and who are personally responsible
for the partnership's total liabilities. Limited partners
are those who contribute only money and are not involved
in management decisions and whose liability is limited to
the amount of their investment.
Person or business that has the right to receive a payment
or series of payments and is interested in selling that
income stream for cash. (Also called the seller or client.)
The person, company, or government responsible for making
payments on an income stream.
Any part of a payment stream that is less than the full
A contractual agreement between a funding source and a seller,
whereby the seller assumes personal responsibility and liability
for the obligations of the income stream.
A group or package of income streams of the same type.
A legal debt instrument which indicates the amount due from
a customer to pay for goods or services which have NOT yet
been delivered. Generally, factors will not purchase pre-ship
The owner of a privately held business, or one of the main
parties (buyer or seller) involved in a transaction.
A major party to a transaction, acting as either a buyer
or seller; or the owner of a privately held business
Owed to a private individual or business rather than to
a bank or other financial institution.
and Loss Statement:
A financial statement that shows a historical record of
a business' income and expenses.
A written promise to pay a specified amount to a specified
party over a certain period of time.
A document or form used by a customer to issue an order
for goods or services.
Price reductions experienced as a result of purchasing in
Rate of Return
The yield on equity or invested capital.
A form of factoring where the client is liable for payment
in the event the customer does not pay.
A legal proceeding in court to seize property (other than
real estate) given as security for a debt that is in default.
An amount a funding source holds in its account to cover
potential payment defaults. After a certain time period
has passed, the funding source rebates the reserve to the
client less any fees or charges for delinquency. Also called
a bad debt reserve.
The discharge of an obligation by paying a party what is
due (i.e., the satisfaction of an IRS lien or the satisfaction
of a mortgage).
Report give by the client to the factor. The report lists
information about the account of each of the client's customers.
The length of time payments have been made on a note or
other debt instrument.
The marketplace where individuals and businesses can sell
privately held income streams to funding sources for cash.
The bundling and resale of debt instruments to investors;
permitted only for parties licensed and regulated by the
An interest in property, other than real estate, which is
given as security for a debt or other obligation. A security
interest is created by execution of a security agreement
and one or more financing statements under the Uniform Commercial
The owner of an asset that is looking to sell the same.
The person or company that is holding a debt instrument
and wants to factor it.
The collection of payments of interest and principal, and
trust fund items such as fire insurance, taxes, etc., on
a note by the borrower in accordance with the terms of the
note. Servicing by the lender also consists of operational
procedures covering accounting, bookkeeping, insurance,
tax records, loan payment follow-up, delinquent loan follow-up
and loan analysis.
A business owned and operated by an individual.
The act of a creditor acknowledging in writing that a debt
due him or her by a debtor shall be inferior to the debt
due another creditor by the same debtor.
The payment stream and/or balloon payment of an income stream
subsequent to another party's right and interest in the
income stream. Usually the back half of the payment stream
when another party has purchased the front half.
Personal property other than real estate, such as cars,
boats, or other assets.
Value of Money:
Concept that addresses the way the value of money changes
over a period of time.
A commitment on the part of the insurer, once a title search
has been conducted, to provide the proposed insured with
a title insurance policy upon closing.
Title insurance can benefit either the payor or the payee.
Should the beneficiary suffer any damages due to clouded
or false title to real estate, title insurance recompenses
the damaged party to the extent of the damages.
An insurance policy that insures a party against loss due
to a defective title.
A deduction from the list price of goods provided by a business
in return for payment within a specified time frame.
A spreadsheet that lists all loans in a portfolio and their
payment schedule. Usually required for a portfolio transaction.
Commercial Code (UCC):
Standardized set of guidelines protected by law that set
down how business transactions must be conducted.
The document filed with the Secretary of State and/or the
County Clerk's office(s) to perfect a factor's lien on a
clients' assets (accounts receivable). Also called "UCC
The document that is filed with the Secretary of State and/or
the County Clerk's office(s) as evidence of an assignment,
release or change in the UCC-1. In the case of factoring,
a UCC-3 is filed to terminate a UCC- 1 when all outstanding
invoices are paid and the relationship between the client
and the factor is severed. Also called "UCC Statement
With Respect To Change."
A lease or note that has had few, if any, payments made.
A step during the due diligence process in which a factor
confirms the validity of an invoice with the customer.
The return on an investor's capital investment presented
as a ratio of income to the total cost over a specified
period of time.