Glossary

Plain-language definitions of common financing terms.

• Account debtor

  An account debtor is the person or business obligated to pay an account, chattel paper, or general intangible under UCC Article 9.

• Accounts receivable aging report

  An accounts receivable aging report lists unpaid customer invoices and groups them by how long they have been outstanding or past due.

• Advance rate and factoring reserve

  The advance rate is the portion of an eligible invoice funded initially, while the factoring reserve is the remainder held until the account debtor pays and the transaction is reconciled.

• Business credit

  Business credit is the credit history and risk information associated with a company rather than an individual consumer.

• Customer concentration

  Customer concentration is the share of a company's receivables owed by a single customer, and it directly affects how much of the ledger a factor will fund.

• Equipment appraisal and valuation

  Equipment valuation estimates the supportable value of an asset, while an appraisal is a documented professional opinion developed for a stated purpose.

• Equipment financing

  Equipment financing is business-purpose funding used to purchase or use equipment, with the financed asset commonly serving as collateral.

• Factoring fee (discount rate)

  The factoring fee, sometimes called the discount rate, is the charge a factor applies to a purchased or assigned invoice, and it is only one component of the total cost of a facility.

• Invoice factoring

  Invoice factoring is a business financing arrangement in which a company assigns or sells eligible accounts receivable to a factor in exchange for earlier access to cash.

• Loan-to-value

  Loan-to-value is the financed amount divided by the supportable value of the equipment, expressed as a percentage.

• Notice of assignment

  A notice of assignment tells an account debtor that a receivable has been assigned and that payment must follow the assignee's instructions.

• Personal guarantee

  A personal guarantee is a contractual promise by an individual to pay a business obligation if the business does not perform as agreed.

• Recourse vs. non-recourse factoring

  Recourse factoring leaves defined nonpayment risk with the company selling the invoice, while non-recourse factoring shifts only the credit risks specifically covered by the agreement to the factor.

• Soft credit pull vs. hard credit pull

  A soft credit pull reviews a consumer credit file without affecting the score, while a hard inquiry is tied to an application and may affect the score.

• Stipulations

  Stipulations, or stips, are documents, verifications, or conditions that a funding partner requires before final approval or funding.

• Time in business

  Time in business is the length of a company's operating history, measured using formation, start-of-operations, licensing, banking, or tax records.

• UCC-1 financing statement

  A UCC-1 financing statement is a public record used to provide notice that a secured party claims a security interest in described business collateral.

• Underwriting

  Underwriting is the review used to decide whether a financing request fits a funding partner's credit, collateral, capacity, and program requirements.