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Glossary of
Finance Terminology
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"A" credit customers:
Consumers with impeccable credit, who can
obtain a loan from traditional lenders.
Acceleration Clause:
Language in a lease that secures payments for the full term of the
lease.
Accounts Payable:
The amount of money a company owes for goods and services it has
received; any outstanding debt that a company has.
Accounts Receivable:
A collection of a company's outstanding invoices (invoices which
have not yet been paid by the company's customers).
Accounts Receivable Aging Report:
A report showing how long invoices from each customer have been
outstanding.
Advance Rate:
The percentage of the face amount of an income stream that a funding
source will advance to a client.
Amortization:
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.
Articles of Incorporation:
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.
Asset:
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.
Assignability:
The ability to assign (or sell) an income stream to another
individual or business.
Assignee:
The person or business entity who is given, obtains, or buys the
right to an asset.
Assignment:
The transfer of the rights, title or interest of any debt instrument
that is properly owned by another party.
Assignor:
The person giving or selling an asset, and subsequently, forfeiting
rights to that asset.
"B" 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.
Bad Debt:
Any debt that is delinquent and has been written off as
uncollectible.
Balance sheet:
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.
Balloon:
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.
Bankruptcy:
A state of insolvency of an individual or organization. The
inability to pay debts.
Beneficiary:
The person or party entitled to receive the benefits, or proceeds,
of the life insurance policy upon the death of the insured person.
Bill of Lading:
A shipping document which gives instructions to the company
transporting the goods.
Bill of Sale:
A document used to transfer the title of certain goods from seller
to buyer.
Business-based income streams:
Cash flow instruments that are paid to a business by another
business or government.
Cash flow:
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 of expenses.
Cash flow broker:
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.
Cash flow industry:
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.
Cash flow instrument:
Future payment or series of payments. Also called a debt instrument
or income stream.
Cash flow specialist:
A cash flow professional who brokers cash flow transactions or buys
cash flow instruments.
Cash flow transaction:
Occurs whenever a funding source pays cash to an individual or
business in exchange for an income stream.
Chattel mortgage:
A mortgage on personal property, given to secure a debt. Typically
used in the sale of a business. Also called a security agreement.
Collateral:
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 collateral.
Collateral-based income streams:
Cash flow instruments that are secured by collateral.
Collectibility:
Refers to the funding source's ability to collect future income
stream payments once they are purchased.
Commission:
Fee paid to a broker for executing or referring a cash flow
transaction.
Consumer-based income streams:
Cash flows in which the party that owes payments is a consumer, a
private individual.
Contingency-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.
Conversion:
The process of converting a qualified prospect into an active
client.
Corporation:
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.
Creditor:
One who is owed payments on a debt by a debtor.
Debt instrument:
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.
Debtor:
One who owes something and makes payments to a creditor.
Default:
The omission or failure to perform or fulfill a legal duty,
obligation, or promise (i.e. to pay a debt).
Due diligence:
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.
Equity:
The value or interest an owner has in property over and above any
indebtedness owed on the property.
Escrow:
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.
Face value:
The current principal balance on an income stream.
Factor:
A funding source that
specializes in funding accounts receivable.
Factoring:
The purchase of a business' accounts receivable at a discount.
Fictitious name:
A legal statement filed when a person uses a name other than his or
her own to operate a business.
Foreclosure:
A legal proceeding in court to seize property given as security for
a debt that is in default.
Funding source:
An individual investor or an investment company that buys income
streams.
Government-based income streams:
Cash flows paid by a government entity, either directly or through
an insurance company.
Hypothecation:
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.
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:
Savings and loan associations, local and regional banks, mortgage
companies, finance companies, and commercial lenders.
Insurance-based income
streams:
Cash flows stemming from insurance companies and paid to individuals
or businesses.
Intangible personal property:
Something that has value but is not a tangible asset, for example, a
trademark, copyright, patent, or trade secret.
Investment-to-value ratio:
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.
Joint venture:
A business entity established for a specific task, operation, or
goal.
Lead:
A piece of information of possible use in the search for a
prospective client.
Leverage:
The ratio of debt to total assets.
Limited liability company:
A form of business structure designed to combine the best of
corporate and partnership attributes into one entity.
Loan-to-value ratio:
A measure of how heavily mortgaged a property is and how likely the
owner is to default on his or her debts.
Marginal credit customers:
Consumers who may have had some slow pay problems, but generally pay
their bills.
Market value:
The price at which a ready, willing, and informed person would buy
something; the price property would command in the current market.
Marketing:
The process of identifying and communicating with qualified
prospects.
Master Broker:
Individual who has been certified and designated by the American
Cash Flow Association to work with Diversified Cash Flow
Specialists.
Mortgage:
A written instrument that creates a lien by pledging real property
as security for a debt.
Notice of Pre-lien:
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.
Owner financing:
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.
Partnership:
A common form of joint ownership of a business.
Payee:
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.)
Payor:
The person, company, or government responsible for making payments
on an income stream.
Partial:
Any part of a payment stream that is less than the full amount due.
Personal guaranty:
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.
Portfolio:A group or package
of income streams of the same type.
Privately held:
Owed to a private individual or business rather than to a bank or
other financial institution.
Profit and loss statement:
A financial statement that shows a historical record of a business'
income and expenses.
Promissory note:
A written promise to pay a specified amount to a specified party
over a certain period of time.
Real property:
Real estate.
Replevin:
A legal proceeding in court to seize property (other than real
estate) given as security for a debt that is in default.
Reserve:
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.
Satisfaction:
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).
Seasoning:
The length of time payments have been made on a note or other debt
instrument.
Secondary market:
The marketplace where individuals and businesses can sell privately
held income streams to funding sources for cash.
Securitization:
The bundling and resale of debt instruments to investors; permitted
only for parties licensed and regulated by the SEC.
Security interest:
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 Code.
Seller:The person or company
that is holding a debt instrument and wants to sell it.
Servicing:
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.
Sole proprietorship:
A business owned and operated by an individual.
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.
Tail:
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.
Tangible personal property:
Personal property other than real estate, such as cars, boats, or
other assets.
Time value of money:
Concept that addresses the way the value of money changes over a
period of time.
Title commitment:
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:
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.
Title policy:
An insurance policy that insures a party against loss due to a
defective title.
Trial balance printout:
A spreadsheet that lists all loans in a portfolio and their payment
schedule. Usually required for a portfolio transaction.
Uniform Commercial Code (UCC):
Standardized set of guidelines protected by law that set down how
business transactions must be conducted.
Unseasoned:
A lease or note that has had few, if any, payments made.
View and print our
Factoring Application Form:
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Factoring
Informational News Articles
Selecting an
Invoice Factoring Company: Best Practices, Part I
Selecting an Invoice Factoring Company:
Best Practices, Part II
Selecting an Invoice Factoring Company: Best
Practices, Part III
View and print entire article pdf format (click below)
Invoice
Factoring - Best Practices for Selecting a Commercial
Factor
Supplier Guarantee Funding:
An alternative to Purchase Order Financing (PO Funding) that
offers more flexibility and less expensive funding to
businesses.
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