Use MP Star Financial’s easy to understand business funding glossary to gain a better sense of terms used in receivables factoring.

DBA or “Doing Business As”: A legal document filed with the appropriate state agency by which an entity uses a name other than their own official corporate name to operate a business; also known as a fictitious name.

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; also known as the account debtor.

Default: The omission or failure to perform or fulfill a legal duty, obligation, promise or a failure to pay a debt.

Dilution: The amount of risk associated with the collection of accounts receivable due to returns, chargebacks, trade allowances or other deductions taken by account debtors. The amount of dilution will affect the advance rate provided by the factor.

Fee: Refers to the fee the factor charges for providing advance funding of the client’s accounts receivables amount; also known as the discount fee.

Discount Fee: This is the fee charged by the receivables factoring company for performing factoring services. Discount fees are typically time-sensitive and are usually a flat, fixed percentage of the total invoice. This fee can be calculated in various increments; also known simply as the fee.

Due Diligence: The background check and research conducted by the factor to assess the validity of a prospective receivables factoring client (and that client’s customers) before officially entering into a commercial factoring agreement. Due diligence generally involves credit checks, appraisals, UCC searches, lien searches and/or on-site visit 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: Value of the asset, invoice or other business funding collateral at the time it is pledged.

Factor: A funding source that specializes in funding accounts receivable. The factor is the company or entity purchasing accounts receivable (invoices) from the client.

Factoring: The sale of a company’s accounts receivable invoices to a factor to obtain working capital; this is also known as receivables factoring, invoice factoring, bill factoring, accounts receivable factoring, accounts receivable funding and invoice discounting.

Fictitious Name: A legal document filed with the appropriate state agency by which an entity uses a name other than its official corporate name to operate a business; also known as DBA or “doing business as.”

Foreclosure: A legal proceeding in court to seize collateral given as security for a debt that is in default.

Full Recourse Factoring: In this type of receivables factoring, the factor is protected against customer non-payment. If the customer does not ultimately pay the invoice, the client is responsible for paying back the invoice advanced; also known as recourse factoring. (See also Non-Recourse Factoring.)

Funding Source: An individual investor or an investment company that purchases or participates in a business funding transaction.

Want to gain more insight about the business funding method known as receivables factoring? Then please call MP Star Financial today at 1-800-833-3765, ext. 150 today or email your questions about your receivables factoring.