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Accounts Receivable Factoring Glossary

Accounts payable - The amount of money a business owes for goods and services it has received from vendors and suppliers.

Accounts receivable - The amount of money a business is owed by it's customers. In other words, the invoices that have not yet been paid by a company's customers.

Account receivables factoring - The selling of accounts receivable (invoices) in order to obtain quick cash and manage cash flow.

Dilution - The risk associated with the collection of accounts receivable for a business. This risk can take the form of customer returns, chargebacks, slow payment and bad debt.

Factor - The company that purchases the accounts receivable (invoices) from a client. An advance payment is given that is between 70%-90% of the total value of the receivables. A small fee is charged and the remaining balance is released upon receipt of payment for all invoices.

Factoring - The selling of a company's accounts receivable (invoices) to a third party (factor) in order to obtain funding.

Factors Acknowledgment Form - A form sent to a company's customer by the factor confirming that an outstanding invoice exists and that the customer remit payment due to the factor.

Factors advance - Money the factor sends to the company up front and before the factor receives money from the company's customer.

Factors reserve - A money deposit retained by the factor to guard against disputes between the company and it's customers and against losses due to customer nonpayment. The reserve is sent to the company after the customer has paid the factor money owed on the invoice. Also called a bad debt reserve.

Factors verification - Verification by the factor that a product or service delivered by the company was received by the customer and that the customer intends to pay the factor money owed on the invoice.

Recourse factoring - A type of factoring where the risk of customer non-payment remains with the company, not the factor. If a company's customer does not pay money owed on an invoice, the factor has "recourse" against the company for that money and as such is protected.

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