| Advance Rate |
The percentage applied to certain assets such as accounts receivable or inventory to determine the funds available to the borrower. Advance rates are used to calculate the borrowing base. |
| Asset Based Stretch |
Financing that combines core asset based attributes as well as additional liquidity by providing an additional advance based on overall value of assets and/or other favorable business attributes, such as cash flow, growth, etc. Such additional advance is repaid through surplus cash flow over two or three years. |
| Auditors Opinion |
An examination of a company's financial statements performed by a CPA. Once the audit is complete, the CPA issues a qualified or unqualified opinion. Qualified opinions are financial statements prepared according to GAAP, and the financial condition of the company is accurately presented. |
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| Bank Covenant |
Loan agreements between banks and their business-borrowing customers generally contain covenants that require the borrower to do certain things ("affirmative covenants") and not to do others ("negative covenants") during the term of the loan agreement. |
| Bond |
A long-term promissory note issued by a business or governmental unit. The issuer receives money in exchange for promising to make interest payments and to repay the principal on a specified future date. |
| Borrowing Base |
A calculation that governs the amount of available cash that a borrower may utilize. |
| Buy Offer |
The acceptance of a sell offer by a financial institution. |
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| Capital Expenditure (CAPEX) |
Outlay of money to acquire or improve assets such as buildings and machinery. |
| Cash Budget |
A table showing cash flows (receipts, disbursements, and cash balances) for a specific period of time. |
| Cash Conversion Cycle |
The average length of time a dollar is tied up in current assets. inventory conversion period + receivable collection period - payables deferral period. |
| Cash Equivalents |
Short-term investments that can be turned into cash within 90 days or less (i.e. T-bills, CDs, commercial paper). |
| Cash Flow / Business Value |
Financing based on a pre-determined multiple earnings (such as EBITDA); predicated upon the business exhibiting strong history of earnings, access to capital, a solid capital structure and proven ability to earn surplus cash flow. |
| Collateral Dependent |
Financing that utilizes liquidation values of current assets - usually accounts receivable or inventory, to provide working capital. |
| Compensating Balance |
A minimum checking account balance a company must maintain with a bank, normally to 10-20 percent of the outstanding amount of loan. This reserve requirement raises the interest rate to the client. |
| Core Asset Based |
Financing that combines collateral dependent attributes as well as additional liquidity by providing a term loan based on the liquidation values of fixed assets - mainly machinery and equipment and real property. |
| Current Assets |
This is any cash or asset that can be quickly turned into cash. This includes prepaid expenses, accounts receivable, most securities and your inventory. |
| Current Liabilities |
This is a liability in the immediate future. This includes wages, taxes, and accounts payable. |
| Current Net Terms with Client |
The ordinary net day on which your client will pay the gross amount due on an invoice. |
| Current Ratio |
Current assets divided by current liabilities. Your current ratio helps you determine if you have enough working capital to meet your short-term financial obligations. A general rule of thumb is to have a current ratio of 2.0. Although this will vary by business and industry, a number above two may indicate a poor use of capital. A current ratio under 2.0 may indicate an inability to pay current financial obligations with a measure of safety. |
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| Days Sales Outstanding |
Days sales outstanding (DSO) reflects the average number of days it takes to collect receivables. The formula for days sales outstanding = ([account receivables/sales] * 365). |
| Days Sales Outstanding Improvement |
The number of day's improvement in your firm's overall days release outstanding as a result of enrollment in the accelerated payment program with this client. |
| Debtor-in-Possession (DIP) |
A company that has filed for protection under Chapter XI of the federal bankruptcy code and has been permitted by the bankruptcy court to continue its operations to effect a reorganization. |
| Dilution |
Customer deductions (i.e., chargebacks for discounts, allowance, etc.) taken from remittances to the factor in payment of the client's invoices. |
| Discount Amount |
The amount deducted from the gross amount in exchange for accelerated payment. The discount amount is calculated by multiplying the gross amount of an invoice by the discount rate. |
| Discount Day |
The early payment on which you wish to receive accelerated payment for invoices in exchange for a discount. |
| Discount Rate |
The discount your company agreed to provide a particular client in exchange for accelerated payment by the discount day. |
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| Early Payment Terms Desired |
The discount day on which you wish to receive accelerated payment in exchange for a discount. |
| EBITDA |
Earnings before interest, taxes, depreciation, and amortization. |
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| Fair Market Value (FMV) |
A calculation used to determine the value of real estate and consequently, the funds available to the borrower. |
| Fixed Charge Coverage |
The ratio of operating cash flow to cash paid for interest, taxes, and debt principal payments. |
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| Gross Amount |
The total amount due on an invoice on the ordinary net day without application of the discount rate. |
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| Interest Coverage |
The ratio of operating cash flow to cash paid for interest. This coverage indicates how many times interest charges have been earned on a pre-tax basis. |
| Internal Rate of Return (IRR) |
The internal rate of return or "hurdle rate" is the rate a project must exceed if it's to be accepted. The IRR is the discount rate at which a project's net present value (NPV) equals zero. |
| Investment Grade Bonds |
Bonds rated triple B or higher. |
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| Line of Credit |
An informal agreement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period. |
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| Maturity Date |
The date the payment is due to be paid by the buyer. |
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| Net Day |
The day on which the gross amount of the invoice is due. |
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| Orderly Liquidation Value (OLV) |
A calculation used to determine the value of machinery and equipment, and consequently, the funds available to the borrower. |
| Over-Formula Advance |
Additional working capital advances above the agreed upon lending formulas. |
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| Paid Amount |
The amount paid on a particular invoice. This amount will be the difference of the gross amount minus the discount amount. (Note: Paid amount will be equal to the gross amount on invoice(s) that are approved after the discount day unless you select immediate pay). |
| Payment Date |
The date on which trade payables services initiates payment via two-day electronic funds transfer. |
| Payment Obligation (i.e., invoice) |
A non-refutable invoice that is going to be paid by the buyer. |
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| Recapitalization |
A process in which a capital structure of a company is revised through changes in senior debt, subordinated debt and/or equity contribution. |
| Retained Earnings |
Represents an increase in equity, due to profitable operations. Retained earnings is not an asset; it is an element of equity. |
| Revolving Credit Agreement |
A formal, committed line of credit extended by a bank or other lending institution. |
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| Sell Offer |
A collection of one or multiple payment obligations (i.e., invoices) grouped together by a supplier to advance to cash. |
| Structured Finance |
Financing provided to a business that has strong favorable business attributes and a solid capital structure, but lacking a steady history of growth in revenues, earnings and cash flow. |
| Subordinated Debt or Sub-debt |
Debt that is junior in rights, remedies or a claim on assets to senior debt. Payments under the sub-debt instruments are only with the prior consent of the senior debt holder, and principal payments of sub-debt are usually only after the senior debt is completely extinguished. |
| Supplier Number |
The number assigned by your client to identify your company in their accounts payable and procurement systems. |
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| Target Cash Balance |
The desired cash balance a company plans to maintain in order to conduct business. |
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| Weighted Average Cost of Capital (WACC) |
A weighted average of the component costs of debt, preferred stock, and common equity. |
| Working Capital |
Working capital is calculated by subtracting current liabilities from current assets. |
| Working Capital Improvement |
The improvement in your firm's working capital. |
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| Zero Working Capital |
Inventories + Receivables - Payables. |
