Receivables Funding Glossary

Accounts receivable financing
A form of secured lending giving businesses short-term financing by selling their trade receivables or pledging receivables as collateral for a loan. Accounts receivable financing is a flexible way of obtaining credit, since borrowers' financing costs are directly related to their business cycle.
Accounts receivable factoring
Factoring is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.
Assignment
The transfer of ownership of an asset from one person to another.
Cash flow
The total amount of money being transferred into and out of a business, esp. as affecting liquidity.
Discount rate
The interest rate used in discounted cash flow analysis to determine the present value of future cash flows. The discount rate takes into account the time value of money (the idea that money available now is worth more than the same amount of money available in the future because it could be earning interest) and the risk or uncertainty of the anticipated future cash flows (which might be less than expected).
Fees
The charge for services rendered.
Invoice factoring
A financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.
Letter of credit
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
Non-recourse financing
A loan where the lending bank is only entitled to repayment from the profits of the project the loan is funding, not from other assets of the borrower.
Notification
The process in which the financing entity informs the customer in writing of the financing agreement and the customer agrees in writing to the arrangement.
Receivables
An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers.
Reserves
Funds set aside or saved for future use.
Working capital
A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Current Assets - Current Liabilities = Working Capital

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