Glossary of terms

A

Accounts payable

Money owed by the business to another business that has provided goods or services – such as suppliers, contractors and consultants.

Accounts receivables

Money owed to your business by a customer for products and services provided, typically provided on credit.

An Administrator (in an insolvency process)

A licensed restructuring practitioner, appointed under Schedule B1 of the Insolvency Act 2012, to manage the company’s affairs, business and property. On appointment an administrator becomes an officer of the court. An administrator may be appointed:

by the court
by the holder of a qualifying floating charge
by the company or its directors

Advance billing

When an invoice is raised prior to providing a service or job.

Adverse credit history

When a business with an adverse credit history has a track record of poor repayment of debts within agreed credit limits, making them undesirable to offer credit to.

Aged debt / receivables report

A document that lists all unpaid sales invoices – showing the overall amount of money owed at a given date, broken down by customer.

Arrears

Money that is owed and should have been paid earlier – a legal term for debt.

Asset tracing

Also known as asset tracking, it’s a legal process of locating a valuable missing asset belonging to an individual or company. It’s closely related to fraud or theft, where assets are lost through scams, embezzlement or theft. It’s a valuable component of the asset recovery process.

Asset-Based Lending

Asset-based lending refers to a loan that is secured by an asset. Examples of assets that can be used to secure a loan include accounts receivable, inventory/stock, marketable securities (eg brands, Intellectual Property) property, plant and machinery.

Asset Finance

Asset finance is a type of business finance that enables you to confidently acquire the business assets you need to grow and operate both efficiently and effectively within your sector, by spreading the cost of purchase over a fixed time period. It applies to equipment, machinery and vehicles and can also be used to release cash that may be tied up in assets already owned, by means of refinance. Wholly or largely secured on the assets being financed, business asset finance gives you the flexibility to fund your equipment purchases while also avoiding paying out a lump sum.

Assignment

The process whereby a company transfers the rights or benefits of a debt to another company.

Audit – Financial

An audit is the examination of the financial position of an organisation.

Bacs

Bankers’ Automated Clearing System – an electronic system to make payments directly from one bank account to another, taking three days to clear.

Bad debt

Money that is owed to a business that’s considered irrecoverable.

Bad debt relief

Allows businesses, that have made supplies on which they have accounted for and paid VAT but for which they have not received payment, to claim a refund of the VAT by reference to the outstanding amount.

Bad debt protection

Also known as credit insurance, where you can buy a product that insures your debts/invoices so that you still receive payment in the event that your customer can’t settle their invoices.

Bailiffs

Now called enforcement agents, a person employed by the court to remove non-essential belongings from a debtor’s property and auction them, with the money going towards settling an overdue debt.

Bailiff’s certificate

A certificate awarded to a bailiff – now called an enforcement agent – who is deemed a ‘fit and proper person’, by the court. It should always be available for inspection when carrying out work, including photographic identity, judge’s signature and the court seal.

Balance sheet

A financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point (date) in time.

Bankruptcy

A legal proceeding involving a person that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by a person who is owed money from that person.

Business restructuring

In an attempt to save a company that’s experiencing financial difficulties, that company may enter into a process with its creditors known as corporate restructuring or an insolvency process. The process involves a reorganisation of the company’s debts and may also result in non-essential assets being sold in order to keep the company trading.

Cash flow

A measure of a company’s immediate financial health – the net amount of cash and cash-equivalents being transferred into and out of a business.

Cashflow Finance

Is a form of financing in which a loan made to a company is backed by a company’s expected cash flows. A company’s cash flow is the amount of cash that flows in and out of a business in a specific period.

Certificate of satisfaction

A certificate from the court to signify that a County Court Judgment (CCJ) has been paid in full.

CHAPS (Clearing House Automated Payment System)

A way of transferring sums of money the same day. CHAPS is typically used for high-value, urgent payments, such as those transferred by a solicitor between banks and current accounts.

Charge for payment

A legal document that is served in Scotland to formally demand the payment of a debt. 14 days are given to pay the debt in full.

Company registration number

A unique number given to a business when it is registered with Companies House.

Company Voluntary Arrangement (CVA)

An insolvency procedure allowing a company with debt problems, or that is insolvent, to reach a voluntary agreement with its business creditors regarding repayment of all, or part of its corporate debts over an agreed period of time. The application for a CVA can be made with the agreement of all directors of the company, the legal administrator of the company, or the appointed company liquidator.

Compulsory liquidation

When a business is liquidated at the request of the court.

Concentration

A concentration on a sales ledger is where one customer or debtor accounts for a large percentage of the overall ledger of outstanding invoices.

Consumer Credit Act 1974

The Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006) regulates consumer credit and consumer hire agreements. It is the law that gives consumers protection from purchases and sets out how credit should be marketed and managed.

Contractual payments

A business’s monthly credit commitments that were agreed upon signing the original credit agreement.

County Court Judgment (CCJ)

A type of court order in England, Wales and Northern Ireland that could be registered against you if you fail to repay money you owe and can negatively affect your ability to get credit for up to six years.

Court claim form

A formal document on which a court claim is issued, informing the debtor that they have begun legal proceedings against an unpaid debt.

Credit control

The accounts function of a business that will ask for and chase payment of invoices owed to the business.

Credit management

A function performed within a company to improve and control credit policies that will lead to increased revenues and lower risk including increasing collections, reducing credit costs, extending more credit to creditworthy customers, and developing competitive credit terms.

Creditor’s petition

Any creditor who is owed more than £5,000 from an individual can petition for the debtor’s bankruptcy – this is known as a creditor’s petition. In order to petition for a debtor’s bankruptcy:

the outstanding balance must be a liquidated sum payable immediately or at some point in the future
the outstanding balance must be an unsecured debt
it must appear to the creditor that the debtor is unable to make payment or has no reasonable prospect of being able to make payment

Debt collection

A regulated activity that takes place when a creditor has engaged an external company to recover payments that are past due.

Debtor’s application for bankruptcy

An individual that owes more than £5,000 can apply online to make themselves bankrupt by submitting documents demonstrating their inability to pay their debts. Formerly called a debtor’s own petition, this is known as a debtor’s application for bankruptcy.

Debt recovery

A regulated process when a creditor attempts to collect an unpaid debt, usually through a debt collection service.

Debt verification

The right to request information about the debt when a debt collector first contacts you.

Factoring debts

This involves a business selling their invoices to a finance lender. The business receives a percentage of the invoice amount as an advanced payment and then receives the remainder of amount, minus an administration fee to lender, once the invoice is paid.

FCA (Financial Conduct Authority)

The UK financial regulatory body that oversees and provides a regulatory framework to 56,000 financial services firms and financial markets.

Inventory/Stock Finance

This is a type of asset-based Lending that is a short-term loan, secured by the inventory you already hold. As the inventory is sold on to customers, the loan is normally paid off when you raise an invoice for selling the stock/goods.

Invoice Discounting

With invoice discounting you sell unpaid invoices to a lender and they give you a cash advance that is a percentage of the invoice’s value and you receive the remaining balance, less an administration fee, of the invoice amount once paid on normal credit terms.

Invoice Finance

Is a way of borrowing money based on what your customers owe to your business. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full.

Invoice verification

This process of verifying the invoice before making a payment.

Legal

Connected with the law, whether that’s legal advice, legal obligations and requirements, legal rights, legal actions and proceedings or legal representatives.

Loan services

The process when a lender collects principal, interest and escrow loan payments that are due or overdue.

Loan workout agreement

A contract mutually agreed to between a lender and borrower to renegotiate the terms on a loan that is in default. The workout usually involves waiving any existing defaults and restructuring the loan’s terms and covenants.

Members Voluntary Liquidation (MVL)

A formal process for a business to pay off all its creditors before ceasing to trade and then appointing an insolvency practitioner.

Non – recourse factoring

This is a type of factoring facility in which the factoring company assumes the risk of non-payment if the customer does not pay the invoice due to an insolvency during the factoring period.

Peer-to-Peer (P2P) lending

The provision of loans from individuals, businesses and institutions, generally through online platforms. They are an alternative to bank loans and can offer a different funding product with significantly shorter decision lead times.

Pre-audit

A pre-audit is the first step in the process of an audit. During a pre-audit, a company or individual’s financial documents are examined to ensure that all information is correct before the company or individual undergoes an official audit.

Pre-lending review

Often referred to as a business “health check”, it’s designed to take an un-biased look at a company and its particular requirement for finance.

Receivables management

Receivables management is the process of collecting payments due for sales in a timely manner. It refers to the set of policies, procedures, and practices employed by a company in terms of managing sales offered on credit.

Recourse Factoring

An agreement between the client and the factor in which the client is required to buy back the unpaid invoices from the factor. Thus, the credit risk stays with the client in case of non-payment by the debtor.

Sales Finance Agreement

A contract between the finance company and the customer where the customer agrees to buy specific goods – such as a vehicle from a dealer – and repay to the lender the amount of money borrowed to buy those goods, usually offered at the point of sale.

Sales ledger management

The process of managing trade debtors – recording credit sales, checking customer creditworthiness, sending invoices and chasing late payers.

Sales ledger control account

Also known as trade debtors’ control, it is the part of a company’s balance sheet that displays how much your customers owe the company. It’s used as source material for all other financial statements, so it needs to be up-to-date and exact.

Single debt recovery

A valuable service provided by a receivables management company when it assumes responsibility for recovering an unpaid invoice through usual credit management processes. As a result, cash flow issues are alleviated, leaving business owners able to concentrate on increasing sales and profitability.

SME (small or medium-sized enterprise)

Defined by the European Commission, it’s a business or company that has fewer than 250 employees; has either (a) annual turnover not exceeding €50 million (approximately £40 million) or (b) an annual balance-sheet total not exceeding €43 million (approximately £34 million); and of whose capital or voting rights, 25 per cent or more is not owned by one enterprise, or jointly by several enterprises, that fall outside this definition of an SME.

Voluntary bankruptcy

Is where the debtor (individual owing money) applies to make themselves bankrupt.