“ACCOUNT RECEIVABLE FUNDING,
COMMERCIAL FACTORING, FACTORING INVOICE DISCOUNTING
AND OTHER PHRASES TO KNOW”

There are many words and phrases commonly found in the world of commercial factoring but not in your day-to-day business. Check out this list for any definition
or explanation you may need.

Account Debtor This is the customer of a Praxis client. The account debtor is the person or company that has purchased a product or service from you–the factor’s client–and owes money pursuant to an invoice.

Accounts Receivable The amount owed by a business to your company for goods or services already rendered and invoiced. The amount owed is evidenced
by the invoice which specifies the goods or services provided to the customer and the agreed upon payment terms. Accounts receivable are considered an asset
on your balance sheet.

Account Receivable Funding A short-term financing technique used
by businesses to generate working capital. Account receivable funding is generally characterized by a loan to a company, which is collateralized by a security interest in the company's accounts receivable.

Credit The privilege of extending time allowed to make payment on a debt
by a vendor to its customer. Credit also includes the amount of dollars covered
by the privilege.

Customer This person is also known as the account debtor and is the company paying the factoring company.

Dilution The amount of risk associated with collections of the accounts receivable. It can include returns, charge-backs, trade allowances, concentrations, slow pay, bad debt and other perceived risk.

Due Diligence Background check and research conducted by the factor
to assess validity of a prospective factoring invoice discounting client and that client's customers before officially entering into a commercial factoring agreement.

Factor The account receivable funding source for the factoring client. The factor
is the company that purchases the accounts receivable (invoices) from the client.

Factoring The sale of a company's accounts receivable invoices to a factor,
in order to obtain working capital or account receivable funding. Factoring has many names. You may hear it called receivables factoring, invoice factoring, bill factoring, accounts receivable factoring and factoring invoice discounting.

Factors Advance The money the factor sends to the client immediately after the verification process is complete and before the factor receives its money from the client's customer. The advance is figured as a percentage of the face value of the factored invoices. The advance is considered a down payment by the factor for the purchase of the client’s accounts receivable.

Factors Client The business that chooses to sell its accounts receivable to the commercial factoring company.

Factors Fee The fee the factor charges for funding the clients accounts receivable. The fee includes an assortment of services performed by the factor including; advancing funds, credit work, collection and other accounts receivable management services.

Factors Reserve The difference between the face amount of a factored invoice and the amount advanced to you by the factor. The reserve balance is sent to the client periodically after the customer has paid the invoice and after the reserve account has been reconciled to reflect all factor charges including the factors fee.

Factors Reserve Release The amount of money released from the factors reserve once account debtor payments have been received and credited by the factor. The reserve release is generally equal to the invoice amount less the advance amount, any charge-backs, other deductions, any factor fees or costs associated with factoring invoice discounting .

Factoring Services Factoring services include: funding advances, account debtor credit analysis, credit insurance, collection management and account
receivable management.

Factors Verification The process by which the factoring company verifies that the client has provided its product or service to the customer. Praxis verifies that the customer received and accepted the product or service and that the customer intends to pay the factor the money due under the invoice. This process takes place before the factor purchases an invoice and advances cash to the client.

Freight Bill Factoring Truckers “sell” their invoices to a freight bill factoring company which pays the trucker immediately, then handles the collection
of payments and accepts the credit risk for a nominal portion of the trucker’s pay.

Non-Recourse Factoring In this type of commercial factoring, the risk
of customer non-payment is borne by the factor. If the client’s customer does not pay, the factor generally does not have recourse against the client for payment
of the invoice. Praxis offers both non-recourse and recourse products.

Recourse Factoring In this type of commercial factoring, the risk of customer non-payment remains with the client. If the client's customer is financially unable
to pay the money due under the invoice, the factor has recourse against the client's assets for that money.

Working Capital In general, working capital is a term for the funds needed
by your business to pay current expenses such as payroll, benefits, rent, and other operating costs.