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Voluntarily agreeing to the terms of an offer, thereby creating a contract. Can be express or by implication. In invoice finance, a financier will typically indicate acceptance of an offer to purchase a debt or debts by making a prepayment to the client.


Recognition that a debt has been assigned to the financier (see assignment) or other security taken. This would normally be contained within an agreement entered into between an invoice financier and a third party who might take security after the invoice finance agreement has been entered into.

Administration charges

Also referred to as administration fees. A generic term used to cover a range of additional fees that might be applied in the course of running a facility for additional services or risk.

Aged creditor report

An analysis of amounts owed to creditors by their due date or invoice date. Also referred to as an aged purchase ledger.

Aged Debtor Report

An analysis of outstanding debts by their due date or invoice date. Also referred to as an aged (sales) ledger.


A general term for a person appointed to act on behalf of a principal entity or person. In an invoice finance arrangement, the client may be appointed as the financier’s agent solely to collect the outstanding debts on its behalf.

Arrangement Fee

A fee normally charged when a facility commences or is otherwise varied. It is charged to the client and is reflective of the investment and management time or costs incurred by the financier.

Asset Based Finance

The collective description for invoice finance and asset based lending – that is, finance that is provided on the basis of the assets contained within a business. To be distinguished from ‘asset finance’, which is generally used to describe finance that is provided to support the purchase of assets.

Asset Based Lending

An agreement between a business (client) and a financier in which the latter provides the client with a structured facility combining secured loans and revolving credits. The client may pledge as collateral any combination of assets used in the conduct of its business (e.g. stock, plant & machinery, property, brands, etc).


The assignment of a debt or receivable under Scots law. An assignation must be intimated (notified – see notification) before it creates a security interest.


An assignee is the entity to which a debt or receivable is assigned (normally the financier). An assignor is the entity transferring an asset by assignment (i.e the client/customer).

Assignment, notice of

A notice which can be issued by an invoice financier or its client/customer to a debtor, and which informs the debtor that the debts or receivables payable have been assigned to the financier and that payment should be made to them. Also referred to as a disclosure notice.

A general notice of assignment may be given to a client’s debtors prior to commencement of a debt purchase agreement.


The amount of money that is available to the client under a finance arrangement at a point in time. It would normally be calculated by applying the prepayment percentage against the value of approved debts less the balance already drawn by the client, and subject to a concentration limit and any other specified limits and reserves.

Bad Debt

Generally a debt that has not been collected because of protracted default and/or insolvency of the debtor. The precise definition of bad debt will be set out in the debt purchase agreement.

Bad Debt Protection

A generic term for a mechanism to mitigate the impact of bad debts. It can be provided as part of either a recourse or non-recourse invoice finance facility and can be underwritten by the financier or by a third party credit insurer. It would be provided subject to varying terms and conditions.

The term is sometimes used interchangeably with credit protection but, strictly, credit protection should be used where there is a specific credit insurance policy provided by a third party, with bad debt protection normally being provided by the financier themselves.

Ban On Assignment

A clause in a contract of sale which prohibits a client from assigning the benefit of the contract and restricts the assignment of the debts. Also known as prohibition of assignment.

Ban On Assignment (1)

A clause in a contract of sale which prohibits a client from assigning the benefit of the contract and restricts the assignment of the debts. Also known as prohibition of assignment.

Book Debts

The amounts of money due or owed to a business by its debtors. Also known as Accounts receivable.


A hybrid between factoring and invoice discounting. The facility is disclosed and the financier issues monthly statements. However, the client undertakes the credit control function, acting as an agent for the financier for a pre-agreed period of time after which the financier may commence collection activity.

Client Account

A term that is now rarely used. Essentially an accounting term, it is the theoretical value due to the client of the sales ledger if all debts were paid immediately. It would be calculated by deducting the funds in use (current account) from the sales ledger account.

Client/ customer

The entity entering into an asset based finance agreement.

Collect out Fee

An additional contractual fee charged to cover all of the costs and expenses involved in collecting a sales ledger following the insolvency of a client.

Concentration Limit

The maximum amount of funding an invoice financier will provide against debts in a specified category. Also referred to as spread and high involvement. This would often be expressed as a percentage, calculated as the proportion of the value of the debts in the category against all outstanding or approved debts.

The category would normally be a single debtor but could be a group of companies, an industry sector (i.e. manufacturing) or a class of debt (i.e. export debt).

Confidential Facility

An invoice financing facility where the debtor is not notified of the assignment of the debt to the invoice financier. Also known as an undisclosed facility. Invoice discounting facilities would often be confidential, invoice factoring less so.

Contra Trading

Where a business buys from and sells to the same debtor. In the context of an invoice finance facility, this could generate a sum due by the client/customer to the debtor which may be set-off against an unpaid debt. An invoice financier would make explicit provisions in the debt purchase agreement regarding contra trading. Also referred to as set-off.

Contract of Sale

The agreement between the client/customer and the debtor for the supply of goods or services. Also referred to as a supply contract.


An agreement to do or not to do something which would be part of the debt purchase agreement. A breach of a covenant may lead to restrictions on funding and/or might be considered to be a termination event, if not remedied within any/a defined period of time. It can relate to legal, operational or financial matters.

Credit Limit

The maximum value of outstanding debts due within a client-debtor relationship that are covered by bad debt protection or credit protection, and usually the maximum value to which that relationship will be funded. Also known as covered limit and credit line.

Credit Note

An accounting document that reduces or extinguishes the value of an associated invoice. Also see dilutions.

Credit Protection

A mechanism to protect against bad debts using an insurance policy which may be taken out by a client or a financier and which provides cover for outstanding debts in defined circumstances of non-payment, default or insolvency.


A form of security document creating fixed and floating charges over all the assets of the entity against which security is being taken.


A receivable; monetary obligations owed by one entity to another in payment for the supply of goods or services.

Debt Approved

The collection of unpaid debts. This would usually form part of the services offered by a financier under a factoring agreement. It may also include legal action.

Debt Purchase Agreement

A generic term for the legal agreement which gives effect to the sale and purchase of a client’s debts by the financier. Also variously referred to as an invoice finance agreement, a receivables finance agreement, a receivables purchase agreement, or a sales finance agreement.

Debt Turn

The measure used by an invoice financier to illustrate the average length of time taken for debts to be paid. Often referred to as Days Sales Outstanding (DSO).

Debt Verification

A process undertaken by an invoice financier to confirm whether debts have been validly created. This can include written or telephone contact with the debtor.

Debt, disapproved/ unapproved/ineligible

Terms to indicate a debt that has been notified (see notifiable debt) to the financier but which is not approved for funding. These terms may be used in different circumstances by different funders but all have the same effect, that of removing the debt from the funding calculation. Examples include debts that fall outside of specific criteria such as a funding limit or concentration limit or a debt that is disputed.

Debt, Excluded

Debts which are not within the scope of a debt purchase agreement. An excluded debt will not be assigned to the invoice financier and will not form part of its security under its debenture.

Debt, Notifiable

A debt that is within the scope of a financing arrangement and should be submitted to the invoice financier for funding. Conversely, a non-notifiable debt is one which the client/customer should not notify to the financier and which is not eligible for funding. These debts will be defined within the debt purchase agreement.

Debt, Take on

The value of the receivables which are in existence at the commencement date of the facility and notified to the financier.


A person or entity that has been supplied with goods or services by the client and is obliged to make payment for them. Also sometimes referred to as ‘customer’ but care should be taken to distinguish between the client/customer of the invoice financier and their debtor/customer.


Every situation that may reduce the value of an outstanding invoice except the default of the debtor. This would include all debit and credit notes, settlement discounts, deductions, retentions, set-offs (see contra trading) and other adjustments.

Direct Banking (by a client/ customer)

The deliberate banking of the proceeds of a debt being paid by the client into a bank account other than the account specified by the financier. This is considered to be a serious breach of agreement. Also referred to as banking cash.

Direct Payment (By a debtor)

A payment by a debtor into a bank account other than that specified by the financier. Such monies should be transferred by the client to the specified account immediately.

Discount Charge/ Discount Fee

A charge levied by an invoice financier against the funds in use. It is typically calculated in a similar way to interest, at a margin over a base-rate.

Domestic Factoring

A form of factoring where both the client and the debtor are based in the country of the factor.

Export Debt

A debt which is payable by a debtor domiciled outside the country of the supplier.

Export Factoring

A form of factoring in which the client, based in the country of the factor, assigns debts due from debtors based in another country. Import and export factoring are collectively referred to as international factoring. This would often, but not always, be done under the two factor system.

Facility Limit

The maximum amount that a financier is prepared to provide to a client at any time under a particular funding facility. Referred to by a number of different terms, including: global limit, finance limit, review limit, refer limit, prepayment limit, early payment limit/ceiling, prepayment review level, maximum available funds in use and maximum commitment.


A form of invoice finance. It involves the assignment of outstanding debts by a client to an invoice financier to fund working capital requirements. It is provided by a financial entity (or factor), that would purchase the debts, administer the client’s sales ledger, may provide credit control services, and usually collect debts in the factor’s name. The assignment can be disclosed to the debtor. Also known as full service factoring.

Funding Limit

The maximum value of outstanding debts owed by a specified debtor that will be eligible for funding at a particular point in time, subject to terms and conditions. This would normally be specific within a client-debtor relationship, i.e. it would limit funding against Client Y’s outstanding invoices to Debtor Z. This can also be referred to as a debtor funding limit or a debtor approval limit.

Funding Period

The period of time over which an invoice financier will provide funding against a debt. This would be normally be defined in the debt purchase agreement. If the debt remains unpaid after this, the debt would become aged and would likely be unapproved, with the financier entitled to withdraw funding against that debt. The financier may offer funding for a further period subject to negotiation.

Funds in use (Account)

The balance owing to the financier at a given point in time. The account on which the financier records all monetary transactions with the client. This will comprise the aggregate value of all prepayments, fees and charges, at any time, less debtor payments. Also variously referred to as current account or payment account, and as utilisation, commitment, advance or drawing.

Future Debt

A debt/receivable which will come into existence after the commencement of a debt purchase agreement and which would normally be covered by that agreement.

Import Factoring

A form of factoring in which an export debt is managed and collected by an import factor based in the same country as the debtor. Import and export factoring are collectively referred to as international factoring. This would often, but not always, be done under the two factor system.

Inter-Factor Transfer

The transfer of a client/customer from one invoice financier to another. A standard set of procedures and letters (inter-member transfer letters) would normally be used by members of the ABFA to facilitate the smooth transfer.

Invoice Discounting

A form of invoice finance that involves the assignment of outstanding debts by a client to an invoice financier to fund working capital requirements. It is provided by a financial entity that may be called an invoice discounter, who would purchase the debts but the client/customer would normally administer its own sales ledger and collect its own debts. Invoice discounting can either be disclosed or confidential.

Invoice Finance

Generic description for finance provided on the principle of purchase by the financier of the debts owed to a client, represented by its unpaid invoices. The two main types of invoice finance in the UK are invoice factoring and invoice discounting, although there are a range of variations in between. Other terms used include receivables finance and sales finance. The specific term ‘factoring’ is sometimes inaccurately used to refer to all forms of invoice finance.

Minimum Period

The minimum length of time a financing arrangement must be in place before either party may terminate it. This may be distinct from the notice period

Non vesting debts

A debt or receivable to which title is not transferred to an invoice financier (it does not vest to them) but which is usually held on trust for the financier by the client to provide additional security. This may relate to debts subject to ban on assignment, for instance. Additionally, an invoice financier may take a specific legal charge to cover such debts.

Notice Period

The contractual notice period which must be given by either party before a facility can be terminated. This period would normally be linked to, but distinct from, a specified minimum period.


The process by which the client informs the invoice financier that a debt has been created (or a credit note has been issued). The notification would include the value of the debt, which would be used as the basis for funding calculations.

Offer Letter

An in-principle offer made by a financier to a potential client setting out the main commercial terms upon which the financier is prepared to provide a facility. This might also be referred to as heads of terms or heads of agreement.

Over Payment

An amount by which funds drawn down under an invoice finance facility exceed availability or a facility limit. This can occur if funding is extended on the basis of invoices which subsequently become unapproved, for instance. May also be known as excess and over-advance. Over payments can be agreed and approved by the financier in advance, in certain circumstances.


A payment in advance of all or part of the purchase price of the debts assigned under an invoice finance facility. The balance would usually be paid when the debt is paid by the debtor. Also variously referred to as an advance, (initial) purchase price or early payment. The first prepayment can also be known as the initial payment. It would normally be calculated as a percentage of the debts assigned.

Pre-Payment Percentage

The percentage of the approved value of notified (see notification) debts to which an invoice financier may be willing to make prepayments. The percentage would be used to calculate availability of funding. Can also be known as advance rate, advance percentage, initial payment percentage or early payment percentage.


The transfer of ownership of an assigned debt from the original assignee (normally the invoice financier) back to the original assignor of the debt (normally the client).

Recourse invoice finance (Also- non recourse invoice factoring)

A form of invoice finance in which the risk of non-payment by the debtors remains with the client/customer. The financier would retain the ability to recourse (transfer) the debt back to the client/customer if it is not paid. Funding provided against recoursed debts would likely be withdrawn.

Oppositely, under a non-recourse invoice finance facility, the financier would have limited rights to recourse the debt, providing the client with defined protection against non-payment. The circumstances in which debts can and cannot be recoursed will be set out in terms and conditions.

Re-Factoring Fee

A fee payable for the on-going collection costs (and sometimes the continued funding) of a debt that has remained outstanding beyond a specific time period which is usually 90 or 120 days. It may also be charged for re-financing invoices that had previously been disapproved for another reason other than their age.


Also referred to as retention(s). Either a calculated amount based upon invoices or debtors that fall outside of the funding criteria (also see debt, disapproved), or a specific amount that is held back from availability to cover perceived risks.

Retention of Title (ROT)

A claim of retention of ownership by a supplier of goods until payment has been made to them or some other conditions have been met. If valid, this provides the supplier with a form of security against their customer’s default or insolvency. This is also referred to as reservation of title and the contractual clauses giving effect to this are known as Romalpa clauses. ROT may restrict the ability of an invoice financier to provide funding.

Sales Ledger Account

The amount owed to a client/customer by its debtors. This would be comprised of the sum of all outstanding notified invoices (see notification) less the value of any credit notes issued and payments received from debtors in relation to, but not yet allocated against, outstanding invoices.

Service Charge

The charge made by an invoice financier for the provision of the facility. Also known as a factoring fee. Usually charged as a percentage of the value of invoices assigned, occasionally charged as a fixed monthly or annual fee.

Supplier Finance

The collective term for a range of different services offered by large organisations providing credit support for their suppliers. One of the main mechanisms through which it is delivered is reverse factoring. Invoices from a supplier would often be paid at a discount by a financier as soon as they were approved by the debtor, with the financier obtaining payment from the debtor when the invoice is due. The finance is effectively provided against the debtor’s credit rating rather than the supplier’s. Some large commercial organisations would provide the finance themselves without the need for an external financier. The net effect for suppliers is that of providing an early payment discount. Also known as supply chain finance. Supplier finance arrangements may impact on the ability of a business to access invoice finance.

Take On

The process whereby a sales ledger is verified and loaded on to an invoice financier’s computer system in readiness for the commencement of funding.

Termination Event

Any event which entitles either party to take certain action including terminating a facility or accelerating repayment of a facility. This may arise from a breach of the facility, insolvency, failure to meet financial tests, or the occurrence of an adverse event. These will be defined in the debt purchase agreement. Also known as a default event.

Termination Fee

Fee charged where the agreement is terminated prior to its agreed term. 
These are reflective of the loss of income or cost to the financier of the agreement not running its full course. Sometimes referred to as break fees. The basis for the calculation of termination fees will be set out in the terms and conditions.

Trust Account

A bank account in the name of a client/customer, the proceeds of which are held on trust for the invoice financier. It is the account to which the proceeds of debts funded under a debt purchase agreement must be paid. The account is controlled by the financier and the client has no rights to access the account. Also referred to as the specified account or subsidiary account.

Undisclosed Factoring

A form of factoring which does not require notice of assignment to be given to debtors until the factor decides that notice must be delivered. Also known as Confidential Factoring.