Business Cash Advance Glossary of terms and definitions
Account: A certain customer’s claims, invoices or exchanges for goods or services.
Account Debtor: The entity responsible for paying a debt. In the case of factoring, the account debtor is the customer whose name is on the invoice sold to the factor(Business cash advance company).
Accounts Payable: Accounts to which an entity owes for goods and services; debts that a company has.
Accounts Receivable: The money owed to a company from accounts that have received goods or services from it, i.e., unpaid invoices.
Accounts Receivable Aging Report: Report showing how long invoices have remained unpaid.
Accounts Receivable Factoring:  Financing by selling accounts receivable at a discount to a third party (the factor) that collects the receivable directly.
Accounts Receivable Financing: Financing using accounts receivable as collateral for a loan in which the entity receiving the loan still owns and collects the accounts receivable--a source of working capital
Advance Rate:The percentage of a given amount of income that a client can receive in advance.  The client will repay the full amount of the income (this is related also to the ‘discount’). We will advance up to 125% of the monthly credit card volume.
Asset: Anything of value owned by an entity such as cash, real estate, capitalized equipment, intellectual assets, “goodwill” and accounts receivable.
 
Asset Based Lending: Financing through a loan which is secured by the pledge of a valuable asset such as real estate or inventory in case of default.
Assignability: The ability to sell future income (assign it) to another entity.
Assignee: The entity that obtains the right to an asset such as future income.
Assignment:The transfer of the rights, title or interest of any debt instrument that is owned by another entity.
Assignor:The entity giving or selling an asset, forfeiting rights to that asset.
Authorized Signatory: An individual authorized to execute a binding document on behalf of a legal entity.
"B" through "D" credit customers:Sub-prime credit customers who often cannot qualify for traditional financing.
Bad Debt: Debt that has been written off because it is uncollectable.
Balloon:The total remaining balance of a loan’s principal due at a specified point in time that is before the time required to fully pay off the debt based on its terms (i.e., before it would be fully amortized by making normal payments).
Bankruptcy: A legal status recognizing an entity’s inability to pay its debts and placing limits on the entity’s financial activities.
Beneficiary: The entity stipulated to receive the benefits of a life insurance policy upon the death of the insured person.
 
Bad Debt: Debt that has been written off because it is uncollectable.
Bill of Exchange: Acknowledgement of debt for goods or services received.
Bill of Sale: A document that transfers ownership of goods from seller to buyer.
Blanket Assignment: A legal transfer of ownership of all accounts receivable, both present and future, as collateral for funding.
Broker: An individual or entity that connects the buyer and seller in a transaction; e.g., an entity that connects a factor and business seeking a business cash advance.
Business Cash Advance:  Financing to acquire cash based on the sale of future income, such as credit card receivables or accounts receivable.
Capital Net Worth: The total value of assets over liabilities after all debts have been paid.
Cash Flow: The circulation of cash in an entity, including inflows through the collection of invoices and outflows through the payment of debts.
Cash Flow Broker: A merchant or agent that facilitates financing, especially as a small business loan source, by connecting a factor (one who will buy a future income) and a business seeking a merchant cash advance.
Cash Flow Industry: The collection of businesses that help other businesses finance needed goods and services by providing business or merchant cash advances or high risk small business loans through factoring such as accounts receivable factoring.
Cash Flow Instrument: Future payment or series of payments. Also called a debt instrument or income stream.
Cash Flow Specialist: A cash flow professional that brokers cash flow transactions or buys cash flow instruments.
Cash Flow Transaction: The purchase of future income, including with a business cash advance, by a funding source or factor.
Commercial Credit Insurance: Insurance against large losses from the uncollectability of accounts receivable.
Collateral: Anything with market value that is given as security to the payment of a debt.
Collateral Based Income Streams: Cash flow instruments that are secured by collateral.
Collectibility: The ability of a small business loan source to collect future income after it has been purchased at a discount.
Concentration: The proportion of an entity’s accounts receivables that are owed by a single source. The higher the concentration, the higher the risk.
Confidential Invoice Discounting: An arrangement between a client and a factor in which the factoring relationship is not disclosed to the client's customers.
Consumer Based Income Streams: The party that owes payments out of future income in return for a cash advance is an individual.
Contingency Based Income Streams: The party that owes payments out of future income may not have an undivided legal title to the source of that income.
Credit Analysis: An analysis of financial records to determine if an entity is creditworthy.
Credit Card Factoring:  The purchase of future credit card receivables by a factor; accounts receivable factoring applied to future credit card based receipts.
Credit Card Processor:  A business entity that manages cash flows between parties to a credit card transaction for a fee.
Creditor: The party in a loan or factoring transaction who is owed payments on a debt.
Customer: The entity that owes money on an invoice purchased by the factor.
 
DBA (Doing Business As): The common name of a business not the same as its legally registered name.
DBT: “Days beyond terms;” the number of days a payment is past due.
Debt Instrument: Document obligating future payments on a debt, including cash flow instruments that may obligate future income in return for a business cash advance.
Debtor: The party to a loan or factoring transaction who makes payments.
Default: Failure to fulfill repayment terms of a loan or agreement.
Discount Factoring: Arrangement whereby a factor purchases an account(s) receivable from a business 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.
Default: Failure to fulfill repayment terms of a loan or agreement.
Discount Fee: 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.
Discount Rate: The percentage of the face value of an invoice that a factor holds as its fee.
Due Diligence: Research into the terms or parties to an agreement to determine legal status, financial feasibility, or ownership.
 
Face Value: The full nominal value of an income, including a future income indicated by accounts receivable or estimated credit card receipts.
Factoring: Purchasing a future income (as in accounts receivable factoring or credit card factoring) for a specified rate of return against the amount advanced.
Fictitious Name: A name other than a person’s real name that is used in doing business and must be published for public notice.
Foreclosure: The court’s seizure of property used as security for a debt that is in default.
Income Stream: 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.
Institutional Lenders: Chartered financial institutions subject to regulatory oversight, including banks, mortgage companies, finance companies, and other types commercial lenders.
Invoice: A legal document that indicates the amount a customer owes to pay for delivered goods or services.
Leverage: The ratio of debt to total assets.  Taking on debt to finance business activities means the business is “leveraged”.  It is common for businesses to use assets or future income to acquire financing through leverage.
Liabilities: The sum of all amounts owed by an entity.
Lien: A legal claim filed against property or other assets to secure a debt or judgment. The lien may be satisfied by payment of the debt or judgment.
Lien Search: A review of public records on a property or business to determine if there are any claims filed against those assets for the satisfaction of a debt or judgment.
Line of Credit: A definite amount of credit extended to an entity that may be used at the entity’s discretion to purchase certain goods or services or satisfy certain oblligations.
Liquidity: A measure of the ease of converting assets to cash, conditional on the costs of the conversion.
Loan-to-value ratio: A measure of how heavily mortgaged a property is.  The higher the ratio, the higher the risk to the lending agent.
 
Marginal credit customers: Customers with slow payment histories.
Merchant Cash Advance:  See Business Cash Advance.
Negative Cash Flow: Income is less than expenses.
Note: A written promise to pay a named amount to a particular company or business by a certain date.
Notification: Informing an account debtor that an invoice or invoices have been purchased through factoring and that the factor is to be paid directly.
Non-Notification: An account debtor’s invoices are purchased by a factor, but the debtor is not notified of this fact.
Non-Recourse: Factoring in which the factor assumes the liability of collecting the debt, and assumes the loss if it cannot be collected (there is no recourse to collect through the original owner of the debt).
 
Payee: The entity that sells a future income at a discount for cash (as in a business cash advance).
Payor: The entity responsible for making payments on a debt.
Personal Guaranty: A legal document that stipulates that the seller of a future income (such as accounts receivable) guarantees to the funding source (such as the factor) that the income will be paid.
Promissory Note: A legal document stating the amount(s) one party pledges to pay to one or more others within specified future dates.
Real Property: Real estate.
Rebate: The return of funds issued to the client by a factor from the reserve account.
Receivables Financing:   See Accounts Receivable Financing.
Recourse: In a factoring arrangement, the seller of a future income pledges to pay the income amount to the factor even if the account debtor (who owes the income to the seller) does not pay.
Reserve: Funds held by a loan source or factor to cover potential payment defaults.  After a certain amount of time or when the principal repayment is satisfied, the reserve is rebated to the loan or cash advance recipient.
Reserve Account: An account established by the factor to track funds owed to a client as factored invoices are paid. The account amount equals the invoice face value minus the advance, the factor's fees, charge backs and administrative charges.
 
Schedule of Accounts: A report from the loan or merchant cash advance recipient to the lender or factor listing accounts’ status on which future income has been purchased at a discount.
Seasoning: Amount of time on which payments have been made on a debt.
Security: Valuable assets offered as collateral to secure repayment of a debt.
Security Interest: An interest in property, other than real estate, which is given as security for a debt.
Servicing: Collection and disbursement of all payments on a note as stipulated in the terms of the agreement, plus the operational business activities required to administer the process, e.g., accounting.
Subordination: 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.
 
Tangible Personal Property: Personal property other than real estate that may have value that could be used as collateral or repayment of a loan.
Trial Balance Printout: A list of all accounts in a portfolio, including loan amounts, payment schedule, and status. Usually required for a portfolio transaction.
UCC-1 (Financing Statement): 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).
UCC-2 (Statement with Respect to Change): 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.
Uniform Commercial Code: The State Code which regulates the transfer of property.
Unseasoned: A lease or note that has had few, if any, payments made.
Verification: A step during the due diligence process in which a factor confirms the validity of an invoice.