A summary-level formal record of the financial activities of a company. The financial statements are comprised of four separate reports:
- Balance Sheet: A snapshot of the financial position of the firm on a given date, showing assets, liabilities and shareholders’ equity.
- Income Statement: Shows income, expenses and net profit or loss over a specified period.
- Statement of Cash Flows: Shows the movement of cash over a specified period, also called a Cash Flow Statement. See how to create your cash flow budget here.
- Statement of Retained Earnings: Shows the movement of shareholders’ equity over a specified period.
Also known as conventional factoring or old-line factoring. This is advance, non-recourse factoring where the factor performs all the services of factoring including financing, collections, sales ledger administration and credit protection. It also involves the factor buying all eligible invoices from the client and factoring them on a continuous basis.
See “Guarantees” definition for the complete description. A full guarantee, also called a personal guarantee, allows the factor to go after a client’s personal assets, not tied to the business, in the event of a default.
The maximum amount of money a factor can provide to a client. Also referred to as “Maximum Amount.”
The time from when the factor buys the invoice from the client to when the customer pays the invoice in full.
A guarantee is a formal promise to pay the debt or perform the obligation of another party in the case of default by that party. There are three types of guarantees relevant to factoring: personal, vendor and validity.
A personal guarantee, also called a full guarantee, allows the factor to go after a client’s personal assets, not tied to the business, in the event of a default.
A vendor guarantee occurs when a company gets a large order but can’t afford to buy the supplies to fulfill it. The factor that is assigned the invoice for the order will guarantee payment to the vendor or pay the vendor out of the advance. Also called “Suppliers Guarantee Factoring.”
When a client makes a validity guarantee they warrant that their invoices are collectible, that they have not been pledged to another company and that they are valid. They also promise to forward misdirected payments to the factor. The owner’s personal assets are not tied to this guarantee.
The minimum discount rate charged by the factoring company when the discount rate is adjustable. For instance, the factoring company may charge a rate of 2% for invoices collected within 30 days and then an additional 1% if the invoice is paid between the 31st and 60th days. The initial rate in this case is 2%. That means for a $10,000 invoice you would be charged $200 if the invoice was paid in the first 30 days, but $300 if the invoice was paid between the 31st and 60th days.
Initial Rate Period
The period during which the initial rate applies. For instance, the first 30 days.
International factoring is a form of financing that gives business owners the ability to offer open credit terms to foreign buyers. These buyers may be companies you would not normally be able to sell to, or feel comfortable selling to without a traditional deposit. See more details here.
Part of your financial statements, this shows income, expenses and net profit or loss over a specified period.