Definition of Factoring

Factoring

Sale of a firm's accounts receivable to a financial institution known as a factor.

Factoring

The discounting, or sale at a discount, of receivables on a nonrecourse, notification
basis. The purchaser of the accounts receivable, the factor, assumes full risk of collection and
credit losses, without recourse to the firms discounting the receivables. Customers are notified to
remit directly to the factor.

Factoring

The sale of accounts receivable to a third party, with the third party bearing
the risk of loss if the accounts receivable cannot be collected.

Factoring

Type of financial service whereby a firm sells or transfers title to its accounts receivable to a factoring company, which then acts as principal, not as agent.

Maturity factoring

factoring arrangement that provides collection and insurance of accounts receivable.

Old-line factoring

factoring arrangement that provides collection, insurance, and finance for accounts receivable.

Accidental Dismemberment: (Credit Insurance)

Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.

Accounts

‘Buckets’ within the ledger, part of the accounting system. Each account contains similar transactions (line items) that are used for the production of financial statements. Or commonly used as an abbreviation for financial statements.

Accounts payable

Money owed to suppliers.

ACCOUNTS PAYABLE

Amounts a company owes to creditors.

Accounts payable

Amounts owed by the company for goods and services that have been received, but have not yet been paid for. Usually accounts payable involves the receipt of an invoice from the company providing the services or goods.

accounts payable

Short-term, non-interest-bearing liabilities of a business
that arise in the course of its activities and operations from purchases on
credit. A business buys many things on credit, whereby the purchase
cost of goods and services are not paid for immediately. This liability
account records the amounts owed for credit purchases that will be paid
in the short run, which generally means about one month.

Accounts payable

Acurrent liability on the balance sheet, representing short-term obligations
to pay suppliers.

Accounts Payable

Amounts due to vendors for purchases on open account, that is, not evidenced
by a signed note.

Accounts Payable Days (A/P Days)

The number of days it would take to pay the ending balance
in accounts payable at the average rate of cost of goods sold per day. Calculated by dividing
accounts payable by cost of goods sold per day, which is cost of goods sold divided by 365.

Accounts receivable

Money owed by Customers.

ACCOUNTS RECEIVABLE

Amounts owed to a company by Customers that it sold to on credit. Total accounts receivable are usually reduced by an allowance for doubtful accounts.

Accounts receivable

Amounts owed to the company, generally for sales that it has made.

accounts receivable

Short-term, non-interest-bearing debts owed to a
business by its Customers who bought goods and services from the business
on credit. Generally, these debts should be collected within a month
or so. In a balance sheet, this asset is listed immediately after cash.
(Actually the amount of short-term marketable investments, if the business
has any, is listed after cash and before accounts receivable.)
accounts receivable are viewed as a near-cash type of asset that will be
turned into cash in the short run. A business may not collect all of its
accounts receivable. See also bad debts.

Accounts receivable

A current asset on the balance sheet, representing short-term
amounts due from Customers who have purchased on account.

Accounts Receivable

Amounts due from Customers for sales on open account, not evidenced
by a signed note.

Accounts Receivable

Money owed to a business for merchandise or services sold on open account.

Accounts Receivable Days (A/R Days)

The number of days it would take to collect the ending
balance in accounts receivable at the year's average rate of revenue per day. Calculated as
accounts receivable divided by revenue per day (revenue divided by 365).

Accounts receivable turnover

The ratio of net credit sales to average accounts receivable, a measure of how
quickly Customers pay their bills.

accounts receivable turnover ratio

A ratio computed by dividing annual
sales revenue by the year-end balance of accounts receivable. Technically
speaking, to calculate this ratio the amount of annual credit sales should
be divided by the average accounts receivable balance, but this information
is not readily available from external financial statements. For
reporting internally to managers, this ratio should be refined and finetuned
to be as accurate as possible.

Accretion (of a discount)

In portfolio accounting, a straight-line accumulation of capital gains on discount
bond in anticipation of receipt of par at maturity.

accrual-basis accounting

Well, frankly, accrual is not a good descriptive
term. Perhaps the best way to begin is to mention that accrual-basis
accounting is much more than cash-basis accounting. Recording only the
cash receipts and cash disbursement of a business would be grossly
inadequate. A business has many assets other than cash, as well as
many liabilities, that must be recorded. Measuring profit for a period as
the difference between cash inflows from sales and cash outflows for
expenses would be wrong, and in fact is not allowed for most businesses
by the income tax law. For management, income tax, and financial
reporting purposes, a business needs a comprehensive record-keeping
system—one that recognizes, records, and reports all the assets and liabilities
of a business. This all-inclusive scope of financial record keeping
is referred to as accrual-basis accounting. Accrual-basis accounting
records sales revenue when sales are made (though cash is received
before or after the sales) and records expenses when costs are incurred
(though cash is paid before or after expenses are recorded). Established
financial reporting standards require that profit for a period
must be recorded using accrual-basis accounting methods. Also, these
authoritative standards require that in reporting its financial condition a
business must use accrual-basis accounting.

ad hoc discount

a price concession made under competitive pressure (real or imagined) that does not relate to quantity purchased

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

Affirmative covenant

A bond covenant that specifies certain actions the firm must take.

Agency basis

A means of compensating the broker of a program trade solely on the basis of commission
established through bids submitted by various brokerage firms. agency incentive arrangement. A means of
compensating the broker of a program trade using benchmark prices for issues to be traded in determining
commissions or fees.

Allowance for doubtful accounts

A contra account related to accounts receivable that represents the amounts that the company expects will not be collected.

Allowance for Doubtful Accounts

An estimate of the uncollectible portion of accounts receivable
that is subtracted from the gross amount of accounts receivable to arrive at the estimated collectible
amount.

Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.

Amortization factor

The pool factor implied by the scheduled amortization assuming no prepayemts.

Annuity factor

Present value of $1 paid for each of t periods.

annuity factor

Present value of an annuity of $1 per period.

Asset-specific Risk

The amount of total risk that can be eliminated by diversification by
creating a portfolio. Also known as company-specific risk or
unsystematic risk.

Available-for-Sale Security

A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.

Average age of accounts receivable

The weighted-average age of all of the firm's outstanding invoices.

Average Collection Period

Average number of days necessary to receive cash for the sale of
a company's products. It is calculated by dividing the value of the
accounts receivable by the average daily sales for the period.

Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

Balance of Payments Accounts

A statement of a country's transactions with other countries.

Bank collection float

The time that elapses between when a check is deposited into a bank account and when the funds are available to the depositor, during which period the bank is collecting payment from the payer's bank.

Bank discount basis

A convention used for quoting bids and offers for treasury bills in terms of annualized
yield , based on a 360-day year.

Bankruptcy risk

The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.

Base probability of loss

The probability of not achieving a portfolio expected return.

Basis

Regarding a futures contract, the difference between the cash price and the futures price observed in the
market. Also, it is the price an investor pays for a security plus any out-of-pocket expenses. It is used to
determine capital gains or losses for tax purposes when the stock is sold.

Basis point

In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage
point of yield in bonds equals 100 basis points. basis points also are used for interest rates. An interest rate of
5% is 50 basis points greater than an interest rate of 4.5%.

Basis Point

One one-hundredth of one percent

Basis point

One hundredth of one percentage point, or 0.0001.

Basis Point

One one-hundredth of a percentage point, used to express variations in yields. For example, the difference between 5.36 percent and 5.38 percent is 2 basis points.

Basis price

Price expressed in terms of yield to maturity or annual rate of return.

Basis risk

The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
price risk.

Beneficiary (Credit Insurance)

The person or party designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event. In the case of credit insurance, the beneficiary will always be the creditor.

Best-efforts sale

A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

Beta risk

risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.

Bond-equivalent basis

The method used for computing the bond-equivalent yield.

Borrower (Credit Insurance)

A consumer who borrows money from a lender.

Business risk

The risk that the cash flow of an issuer will be impaired because of adverse economic
conditions, making it difficult for the issuer to meet its operating expenses.

Call risk

The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.

Capital loss

The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

capital loss

The negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss.

Cash discount

An incentive offered to purchasers of a firm's product for payment within a specified time
period, such as ten days.

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Chart of accounts

A listing of all accounts used in the general ledger, usually sorted in
order of account number.

chief financial officer (CFO)

Officer who oversees the treasurer and controller and sets overall financial strategy.

Closing sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.

Collection Department

An internal department within a company staffed by specialists in collecting past due accounts or accounts receivable.

Collection float

The negative float that is created between the time when you deposit a check in your account
and the time when funds are made available.

Collection fractions

The percentage of a given month's sales collected during the month of sale and each
month following the month of sale.

Collection policy

Procedures followed by a firm in attempting to collect accounts receivables.

collection policy

Procedures to collect and monitor receivables.

Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.

Commercial risk

The risk that a foreign debtor will be unable to pay its debts because of business events,
such as bankruptcy.

Company-specific risk

Related: Unsystematic risk

Companyspecific Risk

See asset-specific risk

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Completion risk

The risk that a project will not be brought into operation successfully.

Conditional Sale

A type of agreement to sell whereby a seller retains title to goods sold and delivered to a purchaser until full payment has been made.

Conditional Sale Agreement

An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Confirmation

he written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.

Consumer credit

credit granted by a firm to consumers for the purchase of goods or services. Also called
retail credit.

Consumer Credit Protection Act

A federal Act specifying the proportion of
total pay that may be garnished.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Continuous Discounting

The process of calculating the present value of a stream of future
cash flows by discounting over a continuous period of time

continuous loss

any reduction in units that occurs uniformly
throughout a production process

Conversion factors

Rules set by the Chicago Board of Trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.

Corporate financial planning

financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.

Cost basis

An asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc.

Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.

costs of financial distress

Costs arising from bankruptcy or distorted business decisions before bankruptcy.

Counterparty Party

on the other side of a trade or transaction.

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk
to the option buyer that the option writer will not buy or sell the underlying as agreed.
Country economic risk Developments in a national economy that can affect the outcome of an international
financial transaction.

Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.

Country risk General

Level of political and economic uncertainty in a country affecting the value of loans or
investments in that country.

Credit

Money loaned.

Credit

Buying or selling goods or services now with the intention of payment following at some time in
the future (as opposed to buying or selling goods or services for cash).

Credit

One side of a journal entry, usually depicted as the right side.

Credit

A rating of a company's credit (ability to payback debt), usually by a third party credit agency.

credit

On your bank statement, 'credit' represents funds that you have deposited into your account. The opposite of a credit is a debit.
However, ‘credit’ also means money that you borrow from a financial lender, like a bank. A credit card, for example, is a card that allows you to access funds which you then have to repay.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

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