Invoice Finance: Glossary of Terms

Outstanding invoices owed to a business by its customers for goods or services provided on credit. These represent a current asset on the balance sheet and form the primary security for invoice finance facilities.

The agreed percentage of eligible debts you can access as available funding.

A report that summarises all outstanding balances for each debtor over a period, organised from the invoice date.

Invoices that meet the lender’s eligibility criteria for funding. These typically include factors such as age of invoice, debtor credit rating, and jurisdiction. Only approved debts can be used as collateral for invoice finance facilities.

The accounts receivable (unpaid invoices) that form the primary security for invoice finance facilities. While businesses may have other assets like stock, plant & machinery or property, these are only relevant to invoice finance arrangements if specifically included as additional security.

Specific invoices that have been legally transferred to the finance provider as security for funding. The assignment gives the finance provider the right to collect payment directly from the debtor.

Other businesses under your ownership or control.

The amount of funding accessible to the borrower, typically calculated as:
(Eligible Receivables × Advance Rate) – Current Outstanding Balance

A regulated payment system that allows people and businesses to send and receive money between banks. One of the most common ways to make bank transfers in the UK.

The movement of money in and out of your business over an accounting period. A vital business management tool.

A system for same-day bank transfers in the UK, typically used for high-value payments.

Restrictions on the percentage of the total invoice portfolio that can be concentrated in a single debtor or group of related debtors. This helps manage risk by preventing over-reliance on individual customers.

A type of invoice finance where businesses access funds from unpaid invoices while maintaining customer confidentiality.

A trading relationship where you both buy from and sell to the same customer, requiring offset calculations to determine net amounts owed.

Protection against non-payment under specified circumstances. Available as standalone policies or within non-recourse facilities.

The maximum amount a finance provider will advance against invoices from a specific debtor, based on their creditworthiness and payment history.

The ledger account maintained by the finance provider showing all facility transactions, including advances, collections, fees, and charges. Distinct from standard bank current accounts.

Cash, debtors, stock, and other items expected to convert to cash within twelve months of your balance sheet date.

The average time taken for invoices to be paid, calculated as (Accounts Receivable / Annual Credit Sales) × 365 days. This metric helps assess the quality of the receivables book and efficiency of collections.

When a single customer (or small group of customers) represents a significant percentage of a company’s total outstanding invoices.

The average number of days taken for customers to pay their invoices, calculated as (Accounts Receivable / Annual Sales) × 365. A key metric for cash flow management and collections efficiency.

Any reduction in the face value of invoices due to credits, returns, disputes, or other adjustments. These affect the realisable value of the receivables and must be monitored as part of risk management.

Invoices ineligible for funding, including those over 90 days old, in dispute, deemed uncollectable, or involving associated businesses or contra-trading.

Payments from your account for valid business expenses.

Similar to confidential invoice discounting but where customers know their invoices have been assigned to the finance provider.

The interest rate on borrowed funds, expressed as a percentage over base rate and calculated daily.

Invoices that qualify for funding under the facility agreement. These typically exclude:

• Invoices over 90 days past due
• Inter-company transactions
• Pre-billed or progress invoices
• Contra accounts (where there are both payables and receivables with the same entity)
• Export invoices (unless specifically included)
• Retention amounts

Invoices from international sales, which may be in sterling or other currencies.

The maximum amount available to draw from your current account at any time.

A form of invoice finance where a business sells its unpaid invoices to a third party (factor). The factor provides immediate cash and typically handles credit control and collections.

Assets held for business operations rather than sale, such as equipment, fixtures, and buildings.

A complete solution combining funding against your sales ledger with full credit control and collections service.

The total value of disapproved debts.

A facility where the factor provides protection against customer non-payment within their funding package.

A legal document informing debtors that invoices have been assigned to a finance provider and directing future payments to the provider’s account.

An arrangement where debtors are informed that their invoices have been financed and are instructed to pay directly to the finance provider’s designated account.

A legally binding commitment from company directors or shareholders to personally repay financing if the business defaults. Common security requirement for invoice finance facilities.

The maximum percentage of invoice value available for advance drawing.

The return of a previously assigned invoice to your control.

The monthly process of matching your sales ledger balance to the invoice finance company’s records.

A facility where the finance company can recover advances against unpaid invoices after the agreed period.

Additional charges for collecting invoices that remain unpaid beyond the agreed credit period.

The portion of invoice value (typically 10-20%) withheld by the finance provider until the debtor pays. Protects against dilutions and disputes.

The charge for administering your account, calculated as a percentage of sales. Factoring typically has higher fees than invoice discounting.

The value of your sales ledger at facility commencement, used to calculate initial funding availability.

A segregated bank account where collected payments are held in trust before being applied to the facility. Ensures clear separation of funds and proper allocation of payments.

The difference between current assets and current liabilities, showing funds available for day-to-day operations.