Invoice Finance - Terms Explained (Part 1)

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Both Confidential Invoice Finance and Invoice Factoring contracts can have many terms that may be unfmailiar to you. At Gordon Ferguson we try to explain the contract to you in a more simple and meaningfull way. Below are a list of terms that you may come across and there definitions:

Advance/Prepayment/Initial Percentage (IP) - The initial amount payable by the invoice financier to the client against the debt.

Approved Limit/Credit Limit - A financial limit set by the Invoice Financier as being a maximum amount they are prepared to approve on a specific customer. In non-recourse this limit specifies the level of credit risk the Invoice Financier is prepared to take on a specific customer.

Audit - The process of review carried out after the client has signed an agreement to ensure that the rules of the agreement are being met and that no other risks exist.

Availability - The amount available to the client, based on the agreed percentage of the approved debts after deduction of the current account and subject to any limits or restrictions.

Collections - Any form of payments made to the Invoice Financier in cleared funds which is tendered in or towards the discharge of a debt.

Concentration % - The total one debtor's account consitutes as a percentage of the total sales ledger outstanding.

Contras - Where two companies are both suppliers and customers of each other.

Credit Protection - A type of insurance against possible bad debts.

Disbursements - A charge made for any service provided which is not covered by the service or discount charge. Examples include charges for same day transfers, solicitors letters etc.

Drawdown - Where the client requests payment.

Gross Debt - The total sum of all invoices and credit notes assigned.

Minimum Period - The minimum length of time that an agreement will endure.

Reconciliation - The process used to compare two sets of records to ensure the figures are in agreement and are accurate, ensuring that the two values are balanced at the end of the recording period.

Service Charge - The amount charged by the invoice financier to the client for the service provided. Usually expressed as a percentage of debts purchased.

Unapproved Debt - A debt, which is not approved by the invoice financier for a prepayment due to age, dispute, contra, concentration, credit limit or otherwise.

For a further explanation please give us a call on 01698 440330.