Commercial finance glossary

Accounts Receivables

Accounts receivables represent money owed to a company by the customer for goods or services delivered but not yet paid for.

Credit Insurance

Credit Insurance is a policy that is bought to cover losses due to unpaid accounts receivable.

Factor UK

Factor UK is a service within the United Kingdom where businesses are able to gain an advance of finance from outstanding sales invoices though a factoring company.

Factor Company

A factor company is a business that provides an advance against unpaid sales invoices.

Cash Flow Finance is an umbrella term for solutions to improve a company’s flow of cash by obtaining finance against current sales and stock value. Examples of Cash flow finance include factoring and invoice discounting.

Factor Financing

Factor Financing is a financial transaction where a business sells its unpaid invoices to a factoring company at a discounted rate.

Acquisition

The act of one business acquiring the shares or assets of another business.

Advance Rate

Amount expressed as percentage of approved invoice value which will be paid out or advanced immediately after raising the invoice

Asset based lending

Encompasses funding against debtors in the form of factoring or invoice discounting, and can incorporate an element of funding against stock, property, existing plant and machinery. Also includes hire purchase and leasing products to fund assets in the form of new plant, equipment and vehicles. Can be extended to cover the funding of payroll specifically for recruitment agencies.

Asset Finance

Financing for the purchase of assets in exchange for a security interest in those assets. The most common kind of asset financing is to extend loans to purchase company cars, vans, machinery and equipment.

Cost of funds

The interest rate you will be charged on the money lent to you (usually expressed in amount over bank base rate).

Concentration

The value of your sales ledger expressed as percentage accounted for by your biggest client or clients.

Credit Management

Credit management is generally a broad term used to denote the management of peoples accounts receivable.

Debt

A liability or obligation in the form of bonds, loans, mortgages or overdrafts owed to another person or persons and required to be paid by a specified date (maturity).

Debt collection

A credit management function such as factoring or invoice discounting is a very useful tool here, especially if you are a new or growing business.

Debt finance

Financing by entering into bonds, loans, mortgages or overdraft agreements.

Debtor Protection

The facility offers balance sheet protection, effectively protecting your largest asset (The accounts receivable).

Dilution

The ratio of credit notes to invoices you issue.

Direct lease

You identify the asset and negotiate the price and arrange for us to buy it from the manufacturer (if new) or the previous owner (if used) to lease it to you

Discount

The interest deducted prior to advancing or lending money against outstanding invoices.

Economic Life

The period of time during which an asset has economic value and is usable

Equity

Ownership interest in a firm.

Equity finance

Financing by selling ordinary shares or preference shares to investors.

Factoring

Advance of finance against unpaid, outstanding sales invoices by a factor (factoring company). Some degree of credit management is also built into the facility. Facilities can be structured so that the credit risk remains with the business or is passed on to the factor.

Lloyds TSB Commercial Finance

...provides factoring services to more clients than anyone else in the UK.

Factoring charge

The service charge levied by the factor expressed as a percentage of your gross invoice value

Fair Market Value

Price at which an asset is sold and bought in the open market.

firstcheck

Lloyds TSB Commercial Finance online credit opinion service. It combines data collected by Lloyds TSB Commercial Finance regarding customer payment periods, with historical data to provide an instant opinion.

Initial percentage

see Advance Rate

Initial pre-payment (IPP or IP)

see Advance Rate

Invoice discounting

Financing by raising funds against unpaid outstanding sales invoices. No intervention into current credit management systems and not visible to the customer/debtor.

Invoice Factoring

Invoice factoring is the process of purchasing commercial accounts receivable (invoices) from a business at a discount.

Lease

Contract in which we purchase the asset selected by you and convey the use of that asset to you for a specific period of time at a predetermined rate.

Lease rate

The periodic payment to us for the use of the asset. The lease rate is primarily determined by the total cost of the asset, the duration of the lease and the interest rate level.

Lessee

The lessee is the user of the asset being leased, i.e. you.

Lessor

The lessor is the party who finances the purchase of the asset and has legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the periodic payments, i.e. the leasing company, us.

Master lease

A contractual arrangement which allows you to lease other assets under the same basic terms and conditions without negotiating a new contract.

MBI

Management buy in. New management team buys into the business acquiring either the shares or the business assets.

MBO

Management buy out. Where the existing management team are looking to buy the shares or assets from a parent company, or non-group company.

Merger

The combining of two or more entities into one.

Net Working Capital

Net working capital is defined as a company's total current assets minus its total current liabilities.

Non-recourse facility

Advance of finance against unpaid outstanding invoices in which the credit risk is passed over to the finance company. A non-recourse facility comes with credit insurance meaning you don't have to pay back advances in the event of bad debts. Non-recourse agreements tend to be more restrictive when looking at funding decisions, and more expensive than recourse facilities (see also 'Recourse')

Purchase option

A provision by which you have the right to purchase the asset at the end of a lease term, either at a predetermined amount or its fair market value.

Recourse facility

Advance of finance against unpaid outstanding invoices in which the credit risk remains with the company. You would have to pay back advances in the event of bad debts (see also 'Non-recourse').

Refinance

Paying off an existing loan with the proceeds from a new loan, usually of similar size but on better terms and/or with a new lender. In order to decide whether this is worthwhile, the savings in interest must be weighed against the fees associated with refinancing.

Restructure

Reorganisation of the current business structure to increase efficiencies, realise synergies or account for changes in strategy or the marketplace. This may involve both the business itself as well as the finance.

Residual value

The resale value of the asset at the end of the lease.

Sale - and leaseback

Also called purchase leaseback. You sell an asset you already own to us for fair market value or book written down value (whichever is less) and then lease it back.

Sales finance

Sales finance provides funds for a percentage of approved invoices yet to be paid, for use as working capital.

SolutionsPlus

Online portal only available to Lloyds TSB Commercial Finance clients. Provides access to their account, firstcheck credit opinion service, Lloyds TSB bank products and business advice centres.

Take on

In the case of factoring with sales ledger management, the process of integrating your sales ledger into our system. This takes a couple of hours and allows you to draw down money the next day.

Term sheet

Contains the details of the final quote after discussing your situation with a regional manager

Trade receivables

Trade receivables are a subcategory of Accounts Receivable, they refer to the amounts due to a business following the sale of goods or services to another company.

Turnaround

A sharp, positive reversal in the performance of a company or the overall market.

Useful life

see economic life

Working capital management

Good working capital management will ensure sufficient cash-flow is available to both fulfil orders and cover the running costs of the business.