Glossary
Accounts Receivable: Also known as Receivables. Money owed to a company by a customer for goods or services provided on credit. Treated as an asset.
Acquisition: Acquiring control of a company either through stock purchase or exchange.
Administration Fees: Loan fees for administrative purposes besides interest charged by the lender.
AR Financing (Accounts Receivable Financing): A type of asset-financing arrangement in which a company uses its account receivables - which is money owed by customers - as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables has a large effect on the amount a company will receive. The older the receivables, the less the company can expect.
Asset: Any item with economic value that has the potential to earn future revenue.
Bad Debt Risk: Risk of being unable to collect on receivables for instance accounts receivables or loans.
Buying Power: Also known as purchasing power. The value of money as it relates to the quantity and quality of goods or services it can afford.
Capital: Cash or goods used to generate income either through business activities or investing.
Cash Credit: A short term cash loan.
Credit Terms: The conditions and details that govern a loan or line of credit for instance time period, interest rate, fees etc.
Collateral: Assets offered to a lender to secure a loan or other credit, used as a guarantee for the repayment of the loan and is forfeited in the event the loan defaults.
Debt: Also known as liability. That which is owed.
Distribution: The payment of a dividend, or capital gains by a company.
Finanancial Covenants: In a contract, a clause imposed by the lender which requires the borrower to do something or refrain from doing something. Also known as covenant or restrictive covenant.
Funding Liquidity Risk: Also known as Structural Liquidity Risk. The risk in the normal course of business associated with funding assets, for instance purchasing goods.
Line Limitations: In a line of credit, the maximum total dollar amount of debt permitted.
Liquidity: The ability of an asset to convert quickly into cash without suffering price discounts.
Liquidity Trap: The situation where assets are tied up in nonliquid accounts such as accounts receivable, prohibiting the use of those assets for other purposes. For instance, a reseller who is unable to purchase goods for a new order because prior orders have yet to be paid.
Lockbox: A service provided by banks where a company can receive payments by mail to a post office box. The bank collects the payments several times a day and deposits them directly into the company’s account. This allows the company to use the money as soon as it is received.
Personal Guarantee: A promise made by a business owner that, in the event their company loan defaults, they will personally repay the debt.
PO (Purchase Order): A written authorization issued by the buyer to a supplier indicating products, quantity and agreed price which becomes a legally binding contract when accepted by the seller.
PO Financing: An asset financing arrangement using the purchase order as the collateral. The lender will provide the funds to the seller in order to purchase the goods requested in the purchase order. The lender is repaid when the buyer pays for their requested goods.
Restructuring: Reorganizing a company’s operations.
Structured Financing: Describes any "non-standard" way of raising money. These tailor-made securities go beyond "standard" securities like conventional loans, debentures, debt, and equity. The reason to structure a more advanced security may be that conventional securities may be unattractive, unavailable or too expensive.
UCC (Uniform Commercial Code): Set of laws regulating commercial transactions, particularly those involving the sale of goods.
