Cash flow Finance A to Z: The Terms That Matter and What They Mean
When cash flows freely, businesses invest, hire, take on new contracts, and build. When it stalls, usually because money is sitting in unpaid invoices rather than in your bank, even a profitable business can find itself unable to move.
Cash flow finance exists to solve exactly that problem, and understanding how it works is the first step to making it work for you.
The terminology can feel like a barrier. It shouldn’t. Here’s a plain-English guide to some of the terms you’ll encounter.
The core concept
Invoice finance is a way of unlocking the value in your unpaid invoices before your customers pay them. Rather than waiting 30, 60, or 90 days, a finance provider advances a proportion of the invoice value – typically 70–90% – within 24 hours of the invoice being raised. You receive the remainder, minus fees, when the customer pays. The facility grows as your sales grow, which makes it one of the most naturally aligned funding tools available to an ambitious business.
Choosing the right structure
The right facility isn’t always the cheapest one on paper. It’s the one that fits your business, your customer relationships, and your growth ambitions. A funder who takes the time to understand all three is the right funder. One who leads with rate before understanding your business probably isn’t.
When cash flow works, everything else becomes easier. Businesses that get this right don’t just survive, they build the financial momentum that enables them to thrive.
The definitions in this article are taken from The Pocket Guide to Receivables Finance Terms from Receivables Finance Connect, which we helped to create.
Glossary of Cash flow Finance Terms
This glossary explains common terms used in Receivables Finance/Invoice Finance in plain English. It is designed to help UK business owners, directors, and managers understand the language used by finance providers, brokers, and advisers, and also supports learning for new professionals in the industry.
The document is designed to support informed decision-making by explaining technical terms clearly and consistently, reducing confusion and misunderstanding, and making it easier to compare different types of receivables-based funding with confidence.
The following glossary is educational in nature. It does not replace professional advice or individual contract terms, which may vary between finance providers.
A
ABL (See Asset-Based Lending)
Accounts Receivable (See Receivables) Money that your customers owe your business for goods or services you’ve already supplied to them on credit. Also called ‘Debtors’ or your ‘Sales Ledger’. These are valuable assets because they represent cash you’ll receive in the future, and finance providers may use them as security for a finance facility.
Administrative Receiver A licenced insolvency practitioner appointed by a finance provider to take control of a company’s assets and sell them to repay what’s owed. Unlike an Administrator, they act in the interests of the appointing finance provider, not creditors generally. This is becoming a rare type of appointment given changes to the insolvency regime.
Administrator An administrator is a licensed insolvency practitioner appointed to take control of a company that cannot pay its debts, with the aim of rescuing the business, achieving a better outcome for creditors, or selling its assets.
Advance Rate (See Prepayment Percentage) The percentage of an invoice’s total value that a finance provider will pay you immediately. For example, if you raise a £10,000 invoice and your advance rate is 85%, you’ll have access to £8,500, typically within 24 hours. The remaining £1,500 is paid when your customer (debtor) settles the invoice (minus fees). You draw as much as you need, when you need it. (See Availability).
Aged Debt Report/Aged Sales Ledger A report showing how old each unpaid invoice is, usually grouped into categories like 0-30 days, 31-60 days, 61-90 days, and over 90 days old. This helps identify slow-paying customers (debtors) and potential problems.
Approved Debt Invoices that the finance provider has checked and agreed to fund. They’ve confirmed these invoices meet all the requirements and are willing to advance money against them.
Application for Payment A document used mainly in the construction sector to request payment for work completed at different stages of a project. Some finance companies fund these just like regular invoices, whether they’ve been officially certified by a surveyor or not.
Asset-Based Lender (See Finance Provider and Asset-Based Lending)
Asset-Based Lending (ABL) (Often discussed alongside receivables, but structurally distinct). A flexible finance facility secured against multiple valuable items your business owns – including assets such as Accounts Receivable (money owed by customers), stock, plant & machinery, or property. The higher the value of assets you have, the more your business can potentially borrow. If you can’t repay, the finance provider has title over the assets (See Title).
Asset Finance (Not to be confused with Asset-Based Lending above) Funding that helps you acquire equipment, vehicles, or machinery without paying the full cost upfront. This includes leasing (renting equipment), hire purchase (buying over time), or releasing cash from equipment you already own.
Assignment (See Equitable Assignment and Legal Assignment) The legal process where a business assigns its right to collect money from customers (debtors) to a finance provider. This means the finance provider can then legally claim payment directly from those customers (debtors).
Associated Business Any other business that you own, partly own, or control, or which is connected in a similar way to the business in which you work. Finance providers ask about these because they need to understand your complete business situation and any connected financial risks.
Auction Platform An online marketplace where you can put individual invoices or batches of invoices up for bid. Multiple investors compete to offer you the best terms, similar to eBay but for business invoices.
Audit A review of your accounting records carried out by your finance provider, or their agent, to understand any changes in trading practices that could affect your agreement. It also highlights anything that could lead to a breach in the future. In addition, it provides an opportunity to review whether the facility is delivering the service and funding you expect.
Availability The maximum amount of money you can draw from your finance facility right now. Calculated by taking your eligible invoices (and other business assets, in the case of asset-based lending), multiplying by your advance rate, then subtracting what you’ve already borrowed and any fees owed.
B
BACS (Bankers’ Automated Clearing System) A standard method for transferring money between UK bank accounts. Payments typically take three working days to arrive. Slower than CHAPS but usually free.
Bad Debt Money you’re unlikely to ever receive from a debtor, usually because they’ve become insolvent, disappeared, or it’s been unpaid for so long that recovery is impossible.
Bad Debt Protection (See Credit Insurance) A facility provided from the Finance Provider that protects your business if debtors don’t pay due to insolvency or very long delays. If a protected debtor fails to pay, the finance provider covers the loss rather than taking the money back from you. This usually costs more but provides peace of mind.
Blanket Cover A standard minimum credit limit that a finance provider will automatically apply to all of your customers (debtors) without individual checks, unless they discover specific concerns about a particular customer’s (debtor’s) financial stability.
Blocked Account/Trust Account A bank account in your business name that your customers (debtors) pay into, which is controlled entirely by the finance provider which you can’t access.
Broker An adviser or intermediary who helps you find the right finance provider. They understand different finance providers’ criteria and aim to match your business needs with suitable finance providers, often at no cost to you.
C
Cash Allocations The process of matching money received from debtors to the specific invoices they’re paying. This ensures your records stay accurate and you know exactly which invoices are still outstanding. With Invoice Discounting, you will continue to do this.
Cash Flow The movement of actual money in and out of your business over a period of time. Positive cash flow means more money coming in than going out – essential for paying bills and wages on time.
CHAPS (Clearing House Automated Payment System) A same-day payment service where money arrives in your bank account within hours rather than days. Useful for urgent payments but typically costs £15-£30 per transfer.
CHOC (Customer Handles Own Collections) With a CHOC facility, you retain responsibility for chasing your customers (debtors) and managing your own credit control, making it similar to invoice discounting. The key distinction is that your customers (debtors) pay the finance provider directly rather than paying you, meaning the arrangement is typically disclosed.
CIS (Construction Industry Scheme) A UK tax system where contractors must deduct tax from payments to subcontractors and pass it to HMRC. This affects cash flow, making invoice finance particularly useful in construction although the advance rates seen will be usually lower than other industry types.
Client The business receiving funding under an invoice finance facility from the finance provider. Note that your own clients/customers (the people who owe you money) are called ‘debtors’ or ‘customers’ to avoid confusion.
Collections Money received from your customers (debtors) in payment of their invoices, whether paid directly to the finance provider or the Trust Account, depending on your facility type.
Concentration Limit (See Debtor Concentrations) A safety measure limiting how much money a finance provider will lend against invoices from any single customer within your total facility. For example, your finance provider might only fund up to 40% from that one customer to spread their risk. This protects both you and them if that customer becomes insolvent.
Conditions Precedent Requirements or actions that must be completed before a finance facility becomes available or funds are advanced.
Conditions Subsequent Requirements or actions that must be completed after the facility has started or funds have been advanced, as an ongoing obligation.
Confidential Invoice Discounting (See Undisclosed Facility) A financing arrangement where you receive money against your Accounts Receivable but your relationship with the finance provider isn’t disclosed. You continue managing your own credit control and collections as normal. However, your customers (debtors) pay into a Trust Account – a bank account in your business name but controlled by the finance provider. They then allocate these payments against advances they have made and release the remaining balance to you.
Contra Reserve (See Set-Off) When two businesses both buy from and sell to each other. It can complicate invoice finance because one company might want to deduct what they owe from what they’re owed, reducing the actual amount available for financing. The finance provider will hold a reserve for the amount you owe to your debtor.
Correspondent Factor (See Factoring) A factoring company in another country that partners with your UK finance provider to handle overseas customers. They collect payment locally in the customer’s country and manage the foreign currency and legal aspects.
Covenant A rule written into your financing contract that you must follow (or things you must avoid doing). Breaking these rules can allow the finance provider to restrict your borrowing or even end the agreement. Examples include Debt Turn / DSO (see below) not exceeding any agreed number of days , , not taking on other loans without permission, or keeping your accounts up to date. Operational Covenants are ongoing conditions in a finance agreement that require a business to meet specific operational and reporting requirements (such as providing management accounts, maintaining insurance, or following agreed processes) for the facility to remain in place.
Credit Control All the activities involved in getting customers to pay on time – from checking they’re creditworthy before you give them credit, to sending reminders, making phone calls, and if necessary, taking legal action.
Credit Insurance A separate third party insurance policy that pays out if your customers (debtors) don’t pay due to insolvency or very long delays. You can buy this independently with the Finance Provider noted on the policy to receive any payments for funded debts..
Credit Limit The maximum amount the finance provider will lend against invoices from a specific customer. This is based on the customer’s (debtors) financial strength, creditworthiness and concentration (See Debtor Concentration and Concentration Limit) within your sales ledger. The credit limit should not be regarded as an opinion of credit standing but purely an amount the finance provider is prepared to advance in respect of sales to this customer (debtor).
Credit Note A document that reduces or cancels an invoice, typically issued for returned goods, overcharges, or to resolve disputes. These reduce the amount of money you’ll ultimately receive, which concerns finance providers who’ve already advanced against the original invoice (See Dilution).
Creditor A person or organisation that is owed money, typically after providing goods or services on credit and awaiting payment.
Credit Period/Terms How long you give customers to pay their invoices – for example, ‘30 days net’ means payment is due within 30 days of the invoice date.
Current Account Your running balance with the finance provider showing everything you owe them. It increases when they advance you money or charge fees, and decreases when your customers (debtors) pay. Think of it like a constantly updating statement.
Current Assets Items your business owns that will turn into cash within the next year, such as stock, money owed by customers, and cash in the bank. These are distinct from fixed assets like buildings or machinery that have long-term value.
Customer (See Debtor)
D
Debenture A legal document that gives the finance provider security over all of your company’s assets. This includes both specific items like property, invoices or equipment (called ‘fixed charges’) and changing assets like stock (called ‘floating charges’). If you fail to repay, the finance provider can claim these assets. Taking a debenture is standard practice in invoice finance and asset-based lending.
Debit Note A document issued by your customer which reduces the value of the sales ledger. This is either agreed or not by the Client and if required a credit note processed to clear the debit note.
Debt In the context of Invoice Finance, money your customers (debtors) owe you in relation to invoices you’ve raised.
Debt Collection The process of actively pursuing overdue payments through reminder letters, phone calls, formal demands, and potentially legal action if customers refuse to pay.
Debt Factoring (See Factoring)
Debt Turn/DSO (Days Sales Outstanding) A measure of how quickly your customers (debtors) pay on average. If your DSO is 45 days, it means customers typically take 45 days to pay. Calculated by dividing your total outstanding invoices by your average daily sales.
Debt Verification Checks carried out by a finance provider to confirm invoices are genuine and will be payable, such as contacting customers to verify that goods or services have been delivered and accepted, helping to protect the finance provider against fraud. This can be undertaken on a disclosed and confidential basis dependent on the facility provided.
Debtor A customer who owes you money for goods or services supplied on credit.
Debtor Concentration (See Concentration Limit) How much of your total sales ledger is made up by your biggest customers. If one customer represents 40% of your invoices, you have high concentration, which increases risk if that customer doesn’t pay.
Debtor Finance (See Receivables Finance)
Dilution Any reduction in invoice value. This includes customer returns, price adjustments, discounts given later, or disputes about quality. High dilution is concerning for finance providers because they’ve already advanced money based on the original invoice amount.
Disapproved Debt (See Ineligible Debt) Invoices that the finance provider won’t advance money against – usually because they’re too old (typically over 90 days), disputed by the customer, exceed credit limits, or involve problem customers.
Disbursement Charges for extra services the finance provider provides such as same-day payment fees (CHAPS charges), legal letters to non-paying customers, or other exceptional costs. These are added to the fees you’ll pay to the finance provider.
Discount Charge The amount you pay on money borrowed from the finance provider. Usually calculated daily on your outstanding balance and typically expressed as a percentage above the Bank of England base rate (e.g. ‘base rate plus 3%’). May use other bank indices if you have facilities in currencies other than GBP. Calculated in the same way as interest on an overdraft.
Direct Banking Where your customer (debtor) pays directly into your bank account rather than the Trust Account controlled by the finance provider. If this is not rectified in accordance with your finance agreement, it’s a serious breach and can result in immediate contract termination.
Disclosed Discounting An invoice finance arrangement where your customers (debtors) know a finance provider is involved, though you still handle your own credit control and collections. Less common than confidential discounting.
Discounter (See Finance Provider and Invoice Discounting)
Dispute When a customer refuses to pay an invoice – e.g. claiming goods weren’t delivered properly, were faulty, or that the amount is wrong. Disputed invoices are usually removed from funding until resolved.
Dunning Letters Formal reminder letters sent to customers to request or demand payment of overdue invoices. Often sent in a series of increasing urgency.
E
Early Payment (See Prepayment)
Eligible Invoices Invoices that meet all of your finance provider’s requirements and can be advanced against. To be eligible, an invoice typically must: be from an acceptable customer, be for genuine goods or services delivered in accordance with your usual type of business, not be too old (usually under 90 days), not be disputed, fall within credit limits, and comply with your agreement terms. Invoices that don’t meet these criteria are called ‘ineligible’ or ‘disapproved’ (See Non-Notifiable).
Entitlement The remaining balance that will become available once customers pay their invoices in full, calculated as total sales ledger value minus what the finance provider has already advanced. This is your money that’s still tied up in unpaid invoices.
Equitable Assignment (See Assignment and Legal Assignment) A transfer of ownership of a debt that’s legally valid even without written paperwork or notice to the customer, as long as both parties intended the transfer and value was given. Most invoice discounting arrangements work this way until the customer is formally notified.
Excluded Debt Specific invoices that are deliberately kept outside your financing arrangement – e.g. for customers you prefer to manage yourself or invoices that don’t meet the finance provider’s criteria. These are never submitted for funding.
Export Concentration Limit The maximum proportion of funding that can be supported against export invoices to a single country, customer, or region. This limit is set by the finance provider to manage risk, ensuring that exposure is not overly dependent on one overseas market or debtor.
Export Debt Amounts owed to your business by overseas customers for goods or services supplied, typically evidenced by invoices raised in a foreign currency or payable from outside the UK.
Export Factoring Invoice finance services specifically for selling to overseas customers, often including currency exchange, international credit checks, and protection against foreign customers not paying.
F
Facility Limit The maximum total amount you can borrow at any one time under your financing agreement. Unlike your Availability (which changes daily), this is a fixed ceiling that can only change by renegotiating with your finance provider.
Factor (See Finance Provider and Factoring)
Factoring A comprehensive service where the finance provider advances money against your invoices and takes over chasing your customers (debtors) for payment. Your debtors pay the finance provider directly and know the finance provider is involved. Often includes bad debt protection.
Factoring Fee (See Service Charge)
Finance Company (See Finance Provider)
Finance Provider In this context, the organisation that supplies your funding facility. Generic terms include lender, funder, or finance company. More specialist terms, depending on the structure, include factor (See Factoring), discounter (See Invoice Discounting), invoice finance company (See Invoice Finance), invoice discounter (See Invoice Discounting), or asset-based lender (See Asset-Based Lending).
Fixed Assets Long-term items your business owns and uses for operations rather than selling – such as buildings, vehicles, computers, and machinery. These differ from current assets which turn into cash within a year.
Fixed Charge (See Floating Charge) Security attached to a specific asset that stops the borrower selling or dealing with it without the finance provider’s consent. In an insolvency, fixed charge holders are paid out before floating charge holders and unsecured creditors.
Floating Charge (See Fixed Charge) Security over a general category of assets, such as stock, that doesn’t restrict how the business uses them day to day. Floating charge holders rank behind fixed charge holders when assets are distributed in an insolvency.
Foreign Exchange Currency exchange services that convert foreign payments into pounds (or vice versa) and can protect you against currency fluctuations when trading internationally.
Full Service Factoring A complete package where the finance provider handles everything relating to your accounts receivable – advancing money against invoices, managing your sales ledger, chasing payment from customers, and providing bad debt protection if customers don’t pay. You hand over all credit control responsibility.
Funder (See Finance Provider)
Funding Limit (See Credit Limit) The maximum amount the finance provider will provide against invoices from one specific customer, based on that customer’s financial strength and creditworthiness. Protects the finance provider from over-exposure to any single debtor.
Funding Period How long the finance provider will continue advancing money against an unpaid invoice. Typically 60-120 days from the end of the month in which the invoice is raised. After this, they’ll ask you to repay the advance if the customer still hasn’t paid, or reduce the value of the availability.
Funds in Use The total amount of money you currently owe to the finance provider at this moment – everything they’ve advanced to you, plus fees and charges, minus customer payments they’ve received. This figure changes daily.
H
High Involvement (See Concentration Limit)
I
Import Factoring (See Factoring) When a UK-based finance provider (factor) helps overseas suppliers collect payment from UK customers. The opposite of export factoring – the finance provider is based in the buyer’s country rather than the seller’s.
Personal Guarantee A personal promise by a director or owner to cover any losses the finance provider suffers, regardless of whether the business itself is found to be liable.
Ineligible Debt (See Disapproved Debt)
Initial Payment (See Prepayment)
Inter-Factor Transfer (See Factoring) Moving your invoice finance facility from one provider to another. There’s a standard process for this to ensure your outstanding invoices and payments are transferred smoothly without disrupting your business.
Invoice A formal document you send to customers detailing what goods or services you’ve provided, how much they owe, and when payment is due.
Invoice Discounter (See Finance Provider and Invoice Discounting)
Invoice Discounting A finance facility where you receive money against your invoices (typically within 24 hours of raising them) but you keep control of chasing your customers (debtors) for payment. Can be confidential (customers unaware) or disclosed (customers informed).
Invoice Factoring (See Factoring)
Invoice Finance (See Receivables Finance) The umbrella term for all types of funding based on your unpaid customer invoices – including factoring, invoice discounting, and related services.
Invoice Finance Agreement Your contract with the Finance Provider setting out all terms, conditions, fees, advance rates, and responsibilities on both sides.
Invoice Finance Company (See Finance Provider and Invoice Finance)
Invoice Finance (See Receivables Finance)
J
JCT (Joint Contracts Tribunal) Standard contract templates widely used in the UK construction industry. Some Finance Providers are familiar with these and can advance money against payments due under JCT contracts.
L
Legal Assignment (See Assignment and Equitable Assignment) A transfer of the right to collect a debt that meets specific legal requirements: it must be in writing and the customer must be formally notified.
Lender (See Finance Provider)
Letter of Credit A guarantee from a bank (usually the buyer’s bank) promising to pay you once you prove you’ve shipped goods or completed work by providing specific documents. Commonly used in international trade to reduce payment risk.
Letter of Release (See Letter of Waiver)
Letter of Waiver A letter from your bank giving your Finance Provider priority over certain agreed assets (usually invoices) . Also called a letter of release. It’s standard practice at the start of a facility where a bank holds a debenture over your assets.
LIBOR (London Interbank Offered Rate) A benchmark interest rate that banks previously used when lending to each other, which finance providers used to calculate their charges. Now largely replaced by SONIA (Sterling Overnight Index Average).
Loan to Value (LTV) In asset-based lending (ABL), Loan-to-Value (LTV) is the percentage of an asset’s value that a finance provider is willing to advance as a loan.
M
Management Buy-In (MBI) When an external management team raises finance to buy and take control of a company. The new managers invest in the business they’re acquiring.
Management Buy-Out (MBO) When a company’s existing managers raise finance to buy the business from its current owners, often the founders or a parent company.
Minimum Fee A guaranteed minimum amount you’ll pay regardless of how much you invoice. For example, if the service fee is 1% of turnover but with a £1,000 monthly minimum, you’ll pay £1,000 even if your turnover only generates £800 in service fees that month.
N
Non-Notifiable Where invoices aren’t individually submitted to the finance provider for funding, even though they sit within the overall agreement.
Non-Recourse A financing arrangement where the finance provider takes on the risk if your customer (debtor) doesn’t pay due to insolvency. If a protected customer (debtor) becomes insolvent, owing you money, the finance provider absorbs the loss rather than taking back the money they’ve advanced to you. Provides peace of mind but typically costs more.
Non-Vesting Debts Invoices that you cannot legally sell to the finance provider (often because contracts forbid it) but which are held in a special arrangement to provide extra security. You keep legal ownership but promise to use any payments received to repay the finance provider.
Notifiable Invoice An invoice that you must assign to the finance provider under your agreement – essentially any invoice that falls within the scope of your facility.
Notice Period How much warning you or the finance provider must give before ending the contract – commonly 30, 60, or 90 days. You can’t just stop using the facility without giving proper notice.
Notification The process of formally telling the finance provider about a new invoice you’ve raised, providing all the details so they can assess it and potentially advance money against it.
O
On Account Cash Money received from a customer that you can’t immediately match to a specific invoice – e.g. they’ve paid a round sum that doesn’t match individual invoices, or didn’t provide a reference. May be held in a suspense account until it can be properly allocated.
Operational Covenant (See Covenant)
Overdraft A traditional bank facility that lets you go into negative balance on your current account up to an agreed limit. Unlike invoice finance, the limit is fixed, doesn’t grow with your sales and is commonly repayable upon demand.
Overpayment When the finance provider has advanced you more money than would be available under the terms of your agreement – e.g. because an invoice later became disputed or a customer became insolvent after funding, or for special circumstances that arise. You may need to repay this excess, or it might be allowed temporarily by agreement.
P
Personal Guarantee Where company directors or owners personally promise to repay the finance if the business cannot. This means your personal assets (home, savings) could be at risk if the business fails. Not all finance providers require these. They may also agree to limit the amount they may claim.
Performance Warranty A commitment by the owner, director or manager of a business to adhere to certain conditions of the facility agreement. Typically this will relate to the point at which invoices are Notified to the finance provider or an undertaking to pass on monies received directly from the debtors.
Phoenix A new business that rises from the ashes of a previous failed company, often with similar operations, customers, or ownership. Finance providers are cautious about phoenixes due to the previous failure.
Prepayment/Prepayment Percentage (See Advance Rate) The money you receive immediately after raising an invoice, expressed as a percentage. For example, an 85% prepayment on a £10,000 invoice means you receive £8,500 straight away, with the remaining £1,500 (minus fees) paid when your customer (debtor) settles.
Proforma Invoice An invoice requiring payment before you deliver goods or services – essentially ‘payment upfront’. Common for new customers or risky transactions.
Prohibition (or Ban) Against Assignment A clause in a customer’s contract that stops you from assigning the benefit of the contract including invoices to a third party such as a finance provider. These clauses are common with government bodies and large retailers, so finance providers will usually ask the customer to sign a waiver before funding those invoices.
Proof of Delivery (POD)Evidence that goods or services have been received by the customer, typically confirming what was delivered, when, and to whom.
Purchase Ledger/Creditors Ledger Your record of all money you owe to suppliers. Shows all unpaid supplier invoices.
Purchase Order Finance Funding that enables you to pay suppliers for goods you need to buy, before you’ve sold them on to your customer (debtor). Bridges the gap between buying and selling.
R
Reassignment When ownership of an invoice transfers back from the finance provider to you – typically because it’s become uncollectible or the customer has gone into administration.
Receivables (See Accounts Receivable) Money owed to your business by customers – simply another term for ‘accounts receivable’ or ‘debtors’. When you’ve supplied goods or services on credit but haven’t been paid yet, that unpaid amount is a receivable. Your total receivables make up your sales ledger.
Receivables Finance (See Invoice Finance) Another term for invoice finance – the practice of raising working capital by borrowing against money your customers (debtors) owe you. Called ‘Receivables Finance’ because it’s based on your Accounts Receivables (unpaid invoices). Also known as ‘Sales Finance’, ‘Invoice Finance’, or ‘Debtor Finance’.
Reconciliation The process of checking that your Sales Ledger records match the finance provider’s records perfectly, ensuring there are no discrepancies in invoices, payments, or credits. Usually done monthly and usually only applies to invoice discounting facilities.
Recourse The concept that you remain responsible if your customers (debtors) don’t pay. If an invoice stays unpaid beyond the funding period, the finance provider will withdraw their advance and you must repay them, whether or not your customer (debtor) eventually pays.
Recourse Period How long the finance provider provides funding against an unpaid invoice before asking you to repay it. Typically 90-120 days from invoice date.
Refactoring Charge An extra fee charged on invoices that remain unpaid beyond the normal recourse period. Covers the finance provider’s additional administration costs for very old debts.
Reserve Money held back from what’s available to you, set aside to cover potential issues like anticipated credit notes, likely disputes, or seasonal variations in your business.
Retention Money held back from payments by your customer (debtor), and only released when work is completed satisfactorily or defects are fixed some time in the future. Common in construction sector contracts.
Retention of Title (ROT) A clause in supplier contracts stating that goods remain the supplier’s property until fully paid for. This can affect asset based finance because if your customer (debtor) hasn’t legally ‘bought’ the goods yet, the invoice might not qualify for funding, or a reserve may be applied to availability in a stock finance facility.
Reverse Factoring (See Supply Chain Finance)
S
Sales Finance (See Invoice Finance)
Sales Ledger Your complete record of all customer invoices – showing who owes you money, how much, and when it’s due. This is the basis for invoice finance.
Schedules The detailed list you submit with your invoices showing customer names, invoice numbers, dates, amounts, and payment terms. Used by the finance provider to track what they’re financing.
Selective Invoice Finance A flexible arrangement where you choose which invoices or customers to finance rather than having to submit everything. Useful if you only need funding for certain contracts or clients.
Self-Billing An arrangement where your customer (debtor) notifies you, or creates the invoice for the amount they owe you, rather than you sending one to them. Common with large retailers and public sector bodies. These invoices can still be financed.
Service Charge/Fee The main fee for using the invoice finance facility, typically charged as a percentage of your total invoiced amount (e.g. 0.5-3% of turnover) or sometimes as a fixed monthly amount.
Set-Off/Contra When a customer reduces or cancels what they owe on an invoice by deducting a claim against you – for example, because goods were faulty or not delivered. They may also be able to deduct a separate debt you owe them, as long as it existed before they were told about the assignment.
SME (Small and Medium-sized Enterprises) Smaller businesses, typically defined in the UK as those with fewer than 250 employees and turnover under £50 million. Most invoice finance customers are SMEs.
Spot Factoring Financing individual invoices one at a time as you choose, without any ongoing contract or commitment. Useful for occasional cash flow needs rather than continuous funding.
Spread (See Concentration Limit) In receivables finance, ‘spread’ refers to the diversity of a business’s customer (debtor) base.
Stage Payments/Staged Payments/Interim Payments Splitting a large project into multiple invoices raised at agreed milestones (e.g. 25% on design, 50% on delivery, and 25% on completion). Not all stages may be eligible for funding, depending on the finance provider and structure, and this is typically offered by finance providers specialising in staged or contract-based finance.
Statement of Account A summary you send to customers showing all invoices, payments, and credit notes on their account – basically their running balance with you.
Supply Chain Finance A financing programme based on a large buyer’s strong credit rating that helps their smaller suppliers get paid quickly. The buyer approves invoices, which suppliers can then get funded immediately at good rates because the buyer (not the supplier) is guaranteeing payment.
Survey An initial assessment the finance provider carries out before offering you a facility, checking your accounting systems, procedures, customer quality, and general business operations to assess suitability and risk.
T
Take-On Debts All the outstanding invoices you already have when starting a new invoice finance facility. These existing unpaid invoices become part of the facility and can be funded immediately.
Termination Event Specific serious situations written into your contract that allow either you or the finance provider to end the agreement immediately – such as insolvency, breaking key rules (covenants), or fraud.
Termination Fee A charge for ending your facility before the minimum contract period is up – typically calculated to compensate the finance provider for lost revenue.
Title Legal ownership of the assets used as security for the loan.
Trade Finance Specialist financing for international trade, helping with the complexities of importing and exporting – including letters of credit, currency management, and payment guarantees across borders.
Trust Account A bank account in your business name that you can’t directly access – controlled by the finance provider. With invoice discounting, your customers (debtors) pay into this account, and the finance provider then allocates the money correctly before releasing your balance.
Two-Factor System (See Factoring) An international arrangement using two cooperating finance companies: one in the seller’s country (export factor) and one in the buyer’s country (import factor). The import factor collects payment locally from the overseas customer and passes it to the export factor, who pays the seller. This reduces currency and collection risks.
U
Undisclosed Facility (See Confidential Invoice Discounting)
V
Validation Order If a creditor issues a winding up petition, a validation order is usually required for your finance provider to continue making advances. Your solicitor will need to apply to the court to confirm that the agreement can continue. Your existing invoicing and collections are not affected.
Vendor Another word for supplier – the businesses you buy from.
Verification Random checks where the finance provider contacts your customers (debtors) directly to confirm invoices are genuine, goods were delivered as described, and there are no disputes. This protects against fraud and ensures quality control.
Vesting (Whole Turnover) An arrangement where every invoice you raise automatically belongs to the finance provider the moment it’s created, without you needing to submit it separately. This is different from an offer and acceptance facility, where invoices must be actively submitted.
W
Waiver (See Letter of Waiver)
Whole Turnover The finance provider will typically require that substantially all invoices are notified to them. (See Selective Invoice Finance).
Working Capital The money available for running your business day-to-day, calculated as current assets (cash, stock, money owed to you) minus current liabilities (bills to pay). Positive working capital means you can pay your bills; negative means cash flow problems.