Financial Glossary

An example of a trade credit offered by a supplier or seller. The buyer or customer recives a 2% discount if they pay the full invoice amount within 10 days. Otherwise, the full balance is due in 30 days.

A person or firm that is designated as the intended recipient of funds paid towards documents such as invoices and purchase orders.

"Third-Party Logistics" - a partner or service that provides outsorced logistics and supply chain services such as storing or shipping goods.

A report that displays a company's accounts payable (A/P) by the number of days outstanding. This is a key metric to determine financial health and a firm's ability to meet debt obligations. A/P agings also take partial payments or discounts into account.

A report that displays a company's accounts receivable (A/R) by the number of days outstanding. This metric, like the A/P Aging, helps to determine a firm's financial health and to view what they owe to vendors and suppliers. A/R agings also refelct partial payments made or discounts taken.

The money that a company owes to its customers for goods or services rendered on credit terms. Accounts Payable is entered as a liability on the buyer's Balance Sheet.

The money that a company is owed by its customers for goods or services rendered on credit terms. Accounts Receivable is entered as an asset on the seller's Balance Sheet.

Also called Debtor's Turnover Ratio - this is a measure of the effectiveness of a company's ability to collect on its owed debts.

The funds that a factoring company sends to the client when their invoices are purchased.

The percentage of each purchased invoice's gross amount that will be advanced to the client. Advance rates can be as high as 95%.

An accounting transaction used to withdrwa funds from any Unapplied Cash (UC) balances stored on the account and apply against open invoices.

An accounting transaction used to withdraw funds from a client's Earned Reserve Balance to apply to open invoices.

Anything of value that a company or individual owns, such as cash, property, or investments.

This type of financial lending allows borrowers to leverage their assets without diluting equity in the company. This allows for increased financial flexibility through working capital without changing the ownership structure.

A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.

B2B, or Business to Business, sales indicate that a business sells its goods or services to other business, not direct to consumers. Invoice factoring is only available to Business to Business or Business to Government (B2G) sales.

B2C, or Business to Consumer, sales indicate that a business sells its goods or services directly to consumers, not to other business or governmental bodies. Invoice factoring is only available to Business to Business (B2B) or Business to Government (B2G) sales.

B2G, or Business to Government, sales indicate that a business sells its goods or services to governmental bodies or entities, not direct to consumers. Invoice factoring is only available to Business to Government or Business to Business (B2B) sales.

The amount that a buyer is expected to pay, typically expressed in hourly or daily rates, for services rendered. This is common in the temporary staffing industry.

The process of recording, managing, and reporting of a company's financial transactions. Sound bookkeeping is vital for business planning, investing, and financial decision making.

Short-term funds that provide immediate financing for situations not addressed by conventional lenders. These include, but are not limited to: acquisitions, tax liens, renovation, and restructuring.

A traditional credit line serviced by a bank. Typically has long approval times and stringent requirements inclduing 2 years of tax returns, audited financials, personal financial statements, cash flow, and projections. Alternatively, you can obtain an invoice factoring facility based solely on creditworthy invoices or A/R aging.

The money or other assets that a company or individual uses to start or maintain a business.

An accounting transaction used to move Unapplied Cash (UC) from one account to another. A negative CA reduces the balance held while a positive CA increases the balance.

The amount of cash a company generates or uses in a specific period of time, typically a month or a year.

A ratio that measures cash from operating activities as a percentage of total sales revenue in a given period.

An accounting transaction used to withdraw funds from a client's Earned Reserve Balance to collect on otherwise uncollectible invoice balances. These invoices still appear on customer reports.

An accounting transaction used to reverse a posted Chargeback (CB) transaction.

The company who sells their invoices to a factoring company.

A wide range of assets that may be used by a borrower to secure a loan or credit line. In invoice factoring, your contracts and invoices serve as this collateral.

The percentage of a client's overall portfolio that each customer accounts for. Concentration is used as a risk measure and is reviewed on a case by case basis.

A trading arrangement in which a seller sends goods to a buyer who pays the seller only whent the goods are sold. The seller typically remains the owner of the goods until they are paid in full. If the goods remain unsold after a certain period, the seller can reclaim them. Also referred to as: Guaranteed Sale, Sale or Return, or Goods on Consignment. These arrangements are typically not financeable and can be risky.

In A/R financing, a contra account is when a factoring company's client and their customer (Account Debtor) owe each other payments. Any situations of both buying and selling to a customer should be disclosed immediately.

Also called Trade Insurance, is an insurance policy for companies who wish to proect their A/R from loss due to risks such as customer bankruptcy.

The maximum amount of money a lender will issue to a business or individual customer (Account Debtor).

An accounting transaction wherein funds are withdrwan from a client's Earned Reserve Balance to apply to open invoices. Typically, CMs are issued by a seller (client) in order to decrease the gross amount of an invoice due payable by the customer. Commonly due to returned goods, allowances taken, or price disputes. CMs should be sent to the factoring company as soon as possible.

An accounting transaction used to reverse a posted Apply Reserve (AR), Credit Memo (CM), or Discount (DI) transaction.

An agreement between the buyer and seller that list the amount owed, when payment is due, and any discounts or fees related to early or late payment. Examples include Net 60 and 2/10 Net 30.

A measure of the number of days that it takes for a company to collect revenue after a sale is made. It is calculated by dividing the number of sales on credit terms during a period by the total value of those credit sales (A/R) during that period, and multiplying the result by the number of days in the period. A low DSO value is evidence that a company collects on its A/R quickly. Invoice factoring with Porter Capital helps to decrease your DSO by employing our full collections team on your behalf.

This is an agreement between a company and its lender(s) that the company will operate within stated rules. Also called a financial covenant.

This metric shows how much of a business is owned by creditors compared to how much of the company's assets are owned by shareholders.

Money that a company or individual owes to others, typically in the form of loans or bonds.

These are any amounts subtracted from an invoice's total value. These are usually taken by the customer without the factor's knowledge. Any deductions that are known, or expected, to be taken should be disclosed.

This is an agreement between a customer (debtor), a secured party (lender) and a bank that allows the lender to have a secured interest in the customer's funds by controlling the deposit account.

A non-cash expense that reflects the reduction in value of an asset over time.

This is all of the discounts, chargebacks, credit memos, allowances, and other deductions that reduce the final owed amount of an invoice.

An accounting transaction used to show a reduction in the owed amount of an invoice. These funds are taken from the client's Earned Reserve Balance to discount the invoice. The two most common types of discounts are: 1. Early payment, pre-payment, or cash discounts that are listed in the invoice's "Terms of Sale.". 2. A trade discount offered by the client to all, or select, customers especially for volume-based reasons.

This is the researching of a business and its owners prior to a lender advancing funds. MCA lenders tend to have minimal due diligence and high fees/interest. Conversely, banks tend to have the most time-consuming due diligence processes at the lowest rates. Invoice factoring can be the best of both worlds - it offers both expedient due diligence and easy access to capital held up in A/R.

Earnings Before Interest, Taxes, Depreciation, and Amortization. This metric is used to evaluate a company's profitability and operating performance.

This is a nine-digit number assigned to a business by the IRS. It is used to identify tax paying entities and their business tax returns.

A type of business loan designed specifically to pruchase machinery and equipment involved in business operations.

The value of a company's assets minus its liabilities, also known as net assets or shareholders' equity.

Any debtor account (customer) whose invoices are sold and advanced on by the lender (Factor).

Invoice Factoring is a type of financial lending wherein a business sells its A/R (invoices) to a third party (factor) who then advances up to 95% of the gross invoice amounts back to the business. Factoring allows businesses to meet their immediate cash needs, mitigate customer credit risk, and decrease Days Sales Outstanding (DSO).

The Discount Fee is the cost of using Invoice Factoring, A/R Management, and Credit Protection from Porter Capital. The factoring rate is typically based on your monthly volume and your customers' credit worthiness.

These documents report a company's sales, expenses, profits, assets, liabilities, and net worth. They are typically made up of: 1. Income Statement 2. Balance Sheet 3. Profit & Loss (P&L) Statement 4. Owners' Personal Financial Statements

A term used to indicate a condition where a company breaks, or cannot fully meet, its promises to creditors. This is typically due to a lack of cash flow available to meet obligations. If financial distress is not relieved, it can lead to bankruptcy. Invoice Factoring is an easy way to resolve financial stresses by allowing immediate access to capital held up in A/R.

This is invoice and freight bill factoring specifically for transportation or trucking companies. Freight Factoring allows for immediate access to funds needed to keep drivers and trucks on the road while also providing the ability for trucking companies to grow. Porter Capital has its own in-house freight factoring division called Porter Freight Funding which offers both Recourse and Non-Recourse Freight Factoring.

The percentage of revenue remaining after deducting the cost of goods sold.

This is the profit a business makes after subtracting all costs related to manufacturing and selling its products or services. It is calculated as the Total Sales less the Cost of Goods Sold (COGS).

This kind of loan is typically provided by a foreign lender and requires that it be paid in hard currency which may be different than the borrower's home currency. Invoice Factoring is an alternative to a hard loan where funds can be advanced on open A/R which is then paid by the borrower's customer (debtor) in the currency described on the invoice.

A heavy industry is one that is capital-intensive, has high barriers to entry, and low transportability. Businesses in these industries often need access to capital in order to expand and compete with other, more established, firms. Examples of these industries include oil & natural gas, transportation, and most manufacturing. Invoice factoring can provide these firms with the capital that they need without selling equity or taking on additional debt.

This is the minimum requried rate of return for a project or investment to be undertaken. It is often referred to as the Weighted Average Cost of Capital (WACC) or simply, the Cost of Capital.

A financial statement that shows a company's revenue, expenses, and profit over a specific period of time.

This financial statement shows how much money a business has earned and lost over a certain period of time.

An accounting transaction used when payment is received from a third-party not existing in the factored accounts.

An accounting transaction used to reverse an Indirect Payment (IP) transaction.

Ineligible accounts typically includes A/R that is greater than 90 days past due, contra accounts, affiliate accounts, consignment sales, and pre-billing. These accounts are considered an asset by the client but not eligible as collateral for lenders.

An agreement between one or more creditors who have shared interests in a single borrower (client). This describes each party's relationship to each other and lays the rules by which issues will be resolved, should they arise.

A type of Asset Based Lending that is based on the borrower's convertible or saleable inventory assets.

The cost of borrowing money, typically expressed as a percentage of the amount borrowed.

The allocation of money or capital in order to gain a financial return, such as stocks, bonds, or real estate.

A legal document detailing goods or services rendered, the customer's information, and the cost and terms of the sale. This is the documentation that Invoice or A/R Financing is built on.

An accounting transaction used to increase or decrease an invoice's owed amount.

The process of ensuring that a client's customers have received the product or services listed on the invoice and that they have the proper documentation to pay the invoice by the stated terms.

This is a legal claim of the government against your assets due to nonpayment of tax debts. The IRS can levy, seize, and sell any personal or business assets if arrangements to settle the debt are not made.

An inventory strategy where companies keep large inventories on hand. This strategy aims to minimize the possibility that a product will sell out of stock.

An inventory strategy where companies align their material orders, supplier transportation, and production schedules to increase efficiency and decrease waste and inventory costs. This strategy requires accurate demand forecasting.

These are a set of quantifiable measurements used to gauge a company's overall long-term performance. They help determine a company's strategic, financial, and operational achievements.

A combination of the defining factors that contribute to a group of customers' buying decisions.

These are any financial ratios that are particularly useful at measuring, illustrating, and summarizing a company's financials in relation to its competitors. These ratios differ between industries, cultures, and geographical regions.

This refers to the intangible value of an organization made up of its knowledge, relationships, learned strategies, procedures, and innovations. This is the full body of knowledge that an organization possesses.

A measure of the amount of debt that a firm uses to finance its assets.

A collection of financial measurements that looks at how much of a firm's total capital is from debt. This measure assesses a firm's ability to meet its financial obligations.

Money that a company or individual owes to others, such as loans or accounts payable.

The ability of a company or individual to meet their financial obligations as they come due.

A collection of financial measurements that are used to determine a firm's ability to pay off its current debt obligations without the need of additional external capital.

A company with the largest market share in an industry. This company uses its dominance to affect the competitive landscape and the direction that the market takes.

An approach to business that prioritizes identifying the needs and desires of consumers and creating products and services that satisfy them.

A measure of how much a product or service is being used by customers compared to the total estimated market for that product or service.

The percent of total sales in an industry generated by a particular company. It is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period.

This arises when the volume of a product or service in a marketplace has been maximized. At this point, a company can only achieve further growth by developing new product improvements, taking market share from competitors, or increasing overall consumer demand.

These are not technically loans but are a very popular method used by small businesses who need influxes of cash. They are typically based on a business' monthly volume of credit card transations. Historically, MCAs are the most expensive way to finance a business and are often accompanied by extremely high interest rates.

This occurs when the cash flowing into a business in a period is less than the cash that this business is spending over the same period. Invoice Factoring can be helpful in overcoming cash flow deficits.

The balance of all outstanding advances on a Client's A/R at a current moment in time. NFE is also a type of pricing used in some Invoice Factoring arrangements wherein fees are based on the NFE balance at the beginning or end of a period.

The percentage of revenue that remains after all expenses have been paid, used as a profitability ratio.

An accounting transaction used to credit a client's Earned Reserve Balance for either overpayments on factored invoices or for payments received for debtors that are not factored through the facility.

This is an agreement within a factoring contract where the client is not required to repay the Factor for invoices that are not paid due to customer bankruptcy. Eligible customers are reviewed on a case by case basis.

A legally binding document which is sent to a client's customer advising them to direct all payments for this client's invoices to the Factor. If a customer pays any party other than the one listed on the NOA, they are still obligated to make this payment in full.

This document is similar, in function, to corporate by-laws. They essentially describe how a limited liability company (LLC) will cary out its business and obligations to its owners. Operating agreements are required by some states. LLCs operating without this type of agreement are subject to their state's default rules and statutes.

This is a measure of a firm's performance and is frequently referred to as Earnings before Interest and Tax (EBIT) or Earnings before Interest, Tax, Depreciation, and/or Amortization (EBITDA).

This is a measure of profitability which describes the percentage of overall revenue that will turn into profit. This is calculated by dividing a firm's Operating Income by Total Revenue. This is also called Return on Sales (ROS).

Any invoice which has not been paid in full by the customer by the agreed upon due date. So, if an invoice sold on Net 30 terms is still unpaid on day 31, this would be considered past due.

This is a clause in a vendor agreement typically found in the construction industry. Here, the prime contractor (Debtor) is not required to pay the subcontractor (Client) until they are paid, in full, by other parties. Issues can arise if the prime contractor (Debtor) is not paid in full, on time, or at all. This is one reason why the ability to factor Construction invoices may be limited. However, Porter Capital has worked with many subcontractors pending review of the contracts and agreements in place.

An accounting transaction used when entering cash received for a previously charged back invoice. Funds are sent directly to the client's Earned Reserve Balance.

An accounting transaction type that is used when entering a check/ACH/Wire for open invoices.

An accounting transaction used to reverse a posted Payment (P) transaction.

This is the act of selling your A/R for access to cash flow which allows you to make payroll or increase staffing prior to receiving full paymnet from customers.

This is an agreement wherein a signed party such as an organization owner, individual employee, or third-party company accepts full responsibility for customer debts in the event of failure to pay.

The act of submitting an invoice for factoring before the products or services have been rendered to the customer. Any pre-billing should be discussed with the factor immediately.

This is the base rate on corporate loans poted by greater than 75% of the nation's 30 largest banks. It is regularly updated and published in the Wall Street Journal.

This is the total scheduled loan payment amount. The Principal (P) is the amount of the original loan that is still owed. The Interest (I) is the periodically accrued fees being applied to that loan.

The amount of money a company or individual has left over after all expenses have been paid.

This is a commercial document issued by a buyer to a seller. It defines the types, quantities, quality, timeliness, and agreed price for products or services that the seller is rendering. Submitting a PO to a vendor or supplier is a buyer's legal offer to buy goods or services. The seller accepts the offer when the requested goods or services are delivered. A contract (e.g., invoice) is formed and the seller now expects payment for these goods or services rendered.

A type of funding that provides a business with the cash needed to fill customer orders. Frequently, businesses will receive more orders than they have the capability of fulfilling due to cash flow constraints. In general, you can utilize Invoice Factoring without pursuing PO Financing but you cannot use PO Financing without the security of an Invoice Factoring company. Porter Capital has worked with a wide range of PO Finance companies and can help you get your products and services to market.

An incentive offered to a buyer that results in a decreased cost per unit (CPU) of goods or materials when purchased in greater numbers. This entices customers to purchase in larger quantities.

A measure of a firm's financial liquidity also known as the Acid Test. It compares the total amount of cash + marketable securities + A/R to the total amount of current liabilities. A quick ratio < 1.0 is typically a sign of poor liquidity while a ratio > 2.0 is evidence of a healthy and liquid firm.

A quoted price represents the most recent bid and ask prices that buyers and sellers were able to agree on.

The ratio of the profit to the investment, used as a measure of the efficiency of an investment.

A recourse factoring agreement is the most popular kind of invoice factoring. Under this type of agreement, the borrower (Client) agrees to repay unpaid invoices that the factor has advanced on after a set amount of time.

This is, in essence, a bank account for the factoring facility where the Client's Earned Reserve Balance will appear. Any positive and available balance can be transferred at the client's request.

An accounting transaction used to reverse an Apply Cash (AC) transaction.

The money that a company or individual earns from the sale of goods or services.

This is a signed accounting document that provides the details of all invoices that a client wishes to factor. Such details include the invoice number, PO number, amount due, due date, and customer information.

A trend seen over time wherein business supply and/or demand predictably changes in certain patterns each year. This is commonly seen in a large number of industries, each with their own "busy" and "slow" seasons throughout a calendar year.

An agreement where a creditor is placed in a lower asset collection priority than it previously had. This means that the new, higher priority, creditor has the right to collect any debts owed by the borrower prior to the other, more subordinate, creditors. Porter Capital is always open to review subordination agreements that allow clients to expand their business, reconcile tax issues, and meet customer demand.

This is an agreement between a buyer and seller which explains the price of goods or service sold, any return policies, shipment or delivery information, and payment terms. This document also typically references a purchase order (PO) or vendor agreement that applies to the specific sale.

This is an action that a company takes to improve its financial situation after a record of poor performance or following a catastrophic event. Porter Capital will both directly fund companies pursuing a turnaround and work with third-party turnaround consultants.

An accounting transaction that is used to hold the amount of non applicable cash in a suspense account for further action.

An accounting transaction used to withdraw funds from any Unapplied Cash (UC) balance stored on the account to apply them against charged back invoices.

An acccounting transaction used to reverse a posted Unapplied Cash to Chargeback (UCB) transaction.

An accounting transaction used to credit the Earned Reserve with a previously entered Unapplied Cash (UC) transaction.

This is a legal public notice that a creditor (i.e., bank or factoring company) files to disclose that it now has an interest in the assets of this debtor (Client). A UCC-1 statement is the specific legal form that a creditor files in order to give public notice of its security interest.

This government department helps to provide businesses with loans, loan guarantees, contracts, counseling, and other assistance. It also provides businesses the ability to bid on government contracts.

A special kind of guarantee used in Invoice Factoring & PO Financing when a small business is owned by many individuals or a corporation. This guarantee holds the signer liable in the case of fraud or misrepresentation of invoices submitted. However, this document does not hold the signer liable for credit loss in a non-recourse agreement.

Most large corporations have their own Vendor or Supplier Agreement that outline all of their terms, conditions, and expectations for their small business partners.

Also known as a Vendor Assurance Porgram, this is an agreement that a company signs in coordination with their supplier and their invoice factoring company in situations where goods are pre-sold but company credit or time in business do not allow the company to buy the goods on credit terms. Essentially, the factor agrees to pay the supplier directly from your factored invoices in order to procure the materials or supplies needed.

Vendor Portals provide a web interface for a company's suppliers to log in and view information such as open orders, outstanding balances, payment remittances, and remit to advice. These portals also expedite the verification process and allow for factors to more quickly advance on your receivables.

The difference between a company's current assets and current liabilities.

An accounting transaction used to fully close a charged back invoice (CB) and remove it from all reports.

This term refers to the degree of efficiency that a firm maintains under conditions of imperfect competition. Efficiency, in this case, consists of maximizing the outputs from a firm's existing inputs. The primary metrics are employee productivity and manufacturing efficiency.

A software standard developed to improve the way that financial data is communicated, compiled, and shared. In this system, software tags financial data and allows it to be more easily transferred between businesses and business units.

The return on an investment, typically expressed as a percentage of the investment's cost.

A statistical tool that describes where a certain score or data point lies on a normally distributed curve. A score of 0 tells us that a certain data point is exactly average while scores of +/- 3 tell us that the data points are at the far ends (high and low) of the distribution.

A business budgeting method that involves starting each period at zero and providing justifications for all expenses. The goal of this technique is to decrease expenses and increase profits.