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Glossary

Advance - payment in full or part (70-90%) of the nominal value of the invoice to the seller of the receivable by a financial institution - the factor.

Non-recourse factoring - factoring where the entire credit risk of the sold receivable is transferred to the financial institution - the factor who has purchased the receivable.

Cash flow - the real net cash in contrast to the accountancy profit arising from the company's business operations in a specific time period which is flowing into or out of the business.

Cession - a form of payment in which three persons take part, of which one it the old creditor (cedent) cedes his claim on his debtor to a new creditor for the settlement of the debt.

Two factor system - a system where the client's factor transfers the receivable to a correspondent factor in the country of the customer (debtor) and where this correspondent factor is liable for payment of the receivable and credit risk. The most commonly used system in international factoring.

Debtor - a legal entity to whom the seller has supplied goods or services (customer).

Bill of exchange discount - a contract on the sale of immature bill of exchange receivables at discount. The act of agreement to bill of exchange discount is performed by endorsement of the bill.

Factor - a financial institution, bank or specialized factor office offering services of purchase of invoices (factoring).

Factoring - sales of receivables to a financial institution, a factor, with or without the right of recourse; a method of financing. The contract by which the client undertakes to offer the factor the sale of all short-term receivables from contracts on supply of goods or rendering of services before they are due with payment of the factoring fee and interest, and the factor undertakes to accept the offer, usually with the transfer of the risk of payment by the client's debtor, where he manages the client's receivables without exception.

Factoring interest - interest paid by the client to the factor on the advance received, calculated on the amount of advance paid.

Factoring fee - the fee the client pays to the factor for the service given of purchase of receivables, paid as a percentage of the nominal amount of the invoice.

Invoice - a bill with information on the goods sold and delivered or the service rendered.

Forfaiting - a financing instrument in foreign trade for medium to long term debts by means of transferable instruments (bills of exchange, accreditation documents, guarantees).

Interfactor agreement - a written agreement between correspondent factors by which the business relationship for export and import factoring is regulated. It is used in international factoring.

Single factor system - the factoring system on the domestic market.

Client - the seller of the invoice.

Correspondent factor - the factor who offers the service of purchase of receivables as an export or import factor as part of international factoring, that is the two factor system; a bank, a specialized factor office or classical factoring institution offering a service to another factor on a reciprocal basis.

Credit limit - revolving limit or framework within which purchase of invoices is approved.

Credit approval - the process of approval of the credit limit, the process by which the credit worthiness and capacity of the business entity is examined.

Liquidity - the ability to pay current debts, the time and expenditure needed for assets to be sold at their true value.

International factoring - an instrument of short-term financing by which monetary assets are obtained by sale of receivables to a factor (a bank, specialized factor office, or classical factoring institution). May be export or import. International export factoring as a rule is true factoring, that is it demands insurance of the payment risk and notification of transfer of the receivable.

Notification - a report sent by the factor to the debtor in relation to the cession of the debt.

Receivable (commercial credit) - credit approved by a supplier to his customer when delivering goods, with the possibility of postponement of payment within an approved time period (30, 60, 90 days or more).

Seller of invoice - the client.

Recourse factoring - the right to receive payment of debt from the seller of the receivable. In general any right to a certain fee, and most often the right of the person who has paid something to the return of what has been paid on the basis of a legal relationship.

Retention - an amount held back, the amount not paid in advance (usually 10/30%). This amount is as a rule paid on the due date of the invoice or after the debtor has paid.

Commercial credit - see receivable.

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