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Financial Terms | |
Factoring |
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Definition of FactoringFactoringSale of a firm's accounts receivable to a financial institution known as a factor. FactoringThe discounting, or sale at a discount, of receivables on a nonrecourse, notification FactoringThe sale of accounts receivable to a third party, with the third party bearing FactoringType 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.
Related Terms:Maturity factoringfactoring arrangement that provides collection and insurance of accounts receivable. Old-line factoringfactoring 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 payableMoney owed to suppliers. ACCOUNTS PAYABLEAmounts a company owes to creditors. Accounts payableAmounts 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 payableShort-term, non-interest-bearing liabilities of a business Accounts payableAcurrent liability on the balance sheet, representing short-term obligations Accounts PayableAmounts due to vendors for purchases on open account, that is, not evidenced Accounts Payable Days (A/P Days)The number of days it would take to pay the ending balance Accounts receivableMoney owed by Customers. ACCOUNTS RECEIVABLEAmounts 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 receivableAmounts owed to the company, generally for sales that it has made. accounts receivableShort-term, non-interest-bearing debts owed to a Accounts receivableA current asset on the balance sheet, representing short-term Accounts ReceivableAmounts due from Customers for sales on open account, not evidenced Accounts ReceivableMoney 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 Accounts receivable turnoverThe ratio of net credit sales to average accounts receivable, a measure of how accounts receivable turnover ratioA ratio computed by dividing annual Accretion (of a discount)In portfolio accounting, a straight-line accumulation of capital gains on discount accrual-basis accountingWell, frankly, accrual is not a good descriptive ad hoc discounta 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 covenantA bond covenant that specifies certain actions the firm must take. Agency basisA means of compensating the broker of a program trade solely on the basis of commission Allowance for doubtful accountsA contra account related to accounts receivable that represents the amounts that the company expects will not be collected. Allowance for Doubtful AccountsAn estimate of the uncollectible portion of accounts receivable 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 factorThe pool factor implied by the scheduled amortization assuming no prepayemts. Annuity factorPresent value of $1 paid for each of t periods. annuity factorPresent value of an annuity of $1 per period. Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Available-for-Sale SecurityA 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 receivableThe weighted-average age of all of the firm's outstanding invoices. Average Collection PeriodAverage number of days necessary to receive cash for the sale of Average collection period, or days' receivablesThe ratio of accounts receivables to sales, or the total Balance of Payments AccountsA statement of a country's transactions with other countries. Bank collection floatThe 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 basisA convention used for quoting bids and offers for treasury bills in terms of annualized Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Base probability of lossThe probability of not achieving a portfolio expected return. BasisRegarding a futures contract, the difference between the cash price and the futures price observed in the Basis pointIn the bond market, the smallest measure used for quoting yields is a basis point. Each percentage Basis PointOne one-hundredth of one percent Basis pointOne hundredth of one percentage point, or 0.0001. Basis PointOne 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 pricePrice expressed in terms of yield to maturity or annual rate of return. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for 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 saleA method of securities distribution/ underwriting in which the securities firm agrees to sell Best-interests-of-creditors testThe requirement that a claim holder voting against a plan of reorganization Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. Bond-equivalent basisThe method used for computing the bond-equivalent yield. Borrower (Credit Insurance)A consumer who borrows money from a lender. Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic Call riskThe combination of cash flow uncertainty and reinvestment risk introduced by a call provision. Capital lossThe difference between the net cost of a security and the net sale price, if that security is sold at a loss. capital lossThe 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 discountAn incentive offered to purchasers of a firm's product for payment within a specified time Changes in Financial PositionSources of funds internally provided from operations that alter a company's Chart of accountsA listing of all accounts used in the general ledger, usually sorted in chief financial officer (CFO)Officer who oversees the treasurer and controller and sets overall financial strategy. Closing saleA transaction in which the seller's intention is to reduce or eliminate a long position in a stock, Collection DepartmentAn internal department within a company staffed by specialists in collecting past due accounts or accounts receivable. Collection floatThe negative float that is created between the time when you deposit a check in your account Collection fractionsThe percentage of a given month's sales collected during the month of sale and each Collection policyProcedures followed by a firm in attempting to collect accounts receivables. collection policyProcedures 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 riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Company-specific riskRelated: Unsystematic risk Companyspecific RiskSee asset-specific risk Comparative credit analysisA method of analysis in which a firm is compared to others that have a desired Completion riskThe risk that a project will not be brought into operation successfully. Conditional SaleA 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 AgreementAn agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands. Conditional sales contractsSimilar to equipment trust certificates except that the lender is either the Confirmationhe written statement that follows any "trade" in the securities markets. Confirmation is issued constant-growth dividend discount modelVersion of the dividend discount model in which dividends grow at a constant rate. Consumer creditcredit granted by a firm to consumers for the purchase of goods or services. Also called Consumer Credit Protection ActA federal Act specifying the proportion of Contingent deferred sales charge (CDSC)The formal name for the load of a back-end load fund. Continuous DiscountingThe process of calculating the present value of a stream of future continuous lossany reduction in units that occurs uniformly Conversion factorsRules set by the Chicago Board of Trade for determining the invoice price of each Corporate financial managementThe application of financial principals within a corporation to create and Corporate financial planningfinancial planning conducted by a firm that encompasses preparation of both Cost basisAn asset’s purchase price, plus costs associated with the purchase, like installation fees, taxes, etc. Cost of salesThe manufacture or purchase price of goods sold in a period or the cost of providing a service. costs of financial distressCosts arising from bankruptcy or distorted business decisions before bankruptcy. Counterparty Partyon the other side of a trade or transaction. Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or CreditMoney loaned. CreditBuying or selling goods or services now with the intention of payment following at some time in CreditOne side of a journal entry, usually depicted as the right side. CreditA rating of a company's credit (ability to payback debt), usually by a third party credit agency. creditOn your bank statement, 'credit' represents funds that you have deposited into your account. The opposite of a credit is a debit. Credit analysisThe process of analyzing information on companies and bond issues in order to estimate the Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |