Glossary

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Accounts Receivable

Accounts Receivable is money owed to a company by a customer for products and /or services sold. Accounts receivable is considered a current asset on a balance sheet once an invoice has been sent to the customer.

Accounts Receivable Financing

Accounts Receivable Financing is a method of financing where a company sells their accounts receivable in exchange for working capital. An A/R credit line is determined by the financial strength of the customers, not the borrower.

Asset Based Lending

Asset Based Lending is a method of financing that allows a business to leverage company assets as collateral for a loan. Asset-based loans are seen as an alternative to traditional loans and are characterized with greater risk and higher interest rates.

Commercial Finance

Commercial Finance is defined as the offering of loans to businesses by a bank or other lender. Commercial loans are either secured by business assets, accounts receivable, etc., or unsecured, in which case the lender relies on the borrower’s cash flow to repay the loan.

Credit Report

A Credit Report is a detailed document supplied by a third party reporting agency that summarizes a firm’s credit history and current financial position. It will inform of any lien in force or pending verdict(s) against the company.

Cross-Border Sale

A Cross-Border Sale refers to any sale that is made between a firm in one country and a firm located in a different country.

Facility

Facility is a form of debt financing in which a loan is extended by a bank or debt financer to a business for operating capital.

Factoring

Factoring is the selling of a company’s accounts receivable at a discount. The lender assumes the credit risk of the debtor and receives the cash when the debtor settles the account.

Foreign Bank Draft

A Foreign Bank Draft is a check from one foreign bank to another, where payment is guaranteed to be available by the issuing bank.

Foreign Exchange

Foreign Exchange is the rate at which one currency is converted into another.

Foreign-Currency-Option Contract

A Foreign-Currency-Option Contract is a contract that allows the holder to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker.

Forward Transaction

A Forward Transaction is an agreement to buy one currency and sell another at a future date at a specific exchange rate. The predetermined foreign exchange rate eliminates exchange rate risk.

Insolvency

Insolvency occurs when a company is unable to meet debt obligations.

Interest Rate

Interest Rate is a fee for borrowing money from a bank or institution. The fee is usually an annual percentage of the amount borrowed.

International Lending

International Lending is known as offshore lending or cross-border financing. International lending occurs when a lender and borrower are in different countries.

Invoice Discounting

Invoice Discounting is a type of loan that is drawn against a company’s outstanding invoices but does not require that the company give up administrative control of those invoices.

Middle Market

Middle Market is a medium-sized company that has 10 to 100 employees and revenues of $10 million to $50 million.

Participation/Joint Finance

Participation or Joint Financing is a shared loan among two or more lenders when a loan exceeds the lending limit of one individual lender.

Receivable Management

Receivable Management involves processing activities related to managing a company’s accounts receivable including collections, credit policies and minimizing any risk that threatens a firm from collecting receivables.

Risk Management

Risk Management is the process of evaluating and managing current and future financial risk to decrease a company’s exposure. The practice of financial risk management can never prevent a company from all possible risks because some are not predicted in time.

Secured Funding

Secured Funding is a loan which is backed by the borrower’s assets in order to reduce the risk taken on by the lender. If the borrower cannot make the required payments, the assets may be forfeited to the lender.

Special Purpose Entity

A Special Purpose Entity is a business interest formed to accomplish specific and temporary objectives. It is legally binding (a limited company or a limited partnership) and used by companies to isolate the firm from financial risk. A company can transfer assets to the SPE for management or to finance a project without putting the entire firm at risk.

Sponsor Finance

Sponsor Finance is a type of financing in which an institutional investor or a brokerage firm has a position in a security and influences other investors to establish a position in that security.

Spot Transaction

A Spot Transaction is a foreign exchange transaction in which an agreed upon price is set and funds are transferred within two business days.

Structured Trade Finance

Structured Trade Finance is cross-border trade finance in emerging markets where the intention is that the loan gets repaid by the liquidation of a flow of commodities.

Swap Contract

A Swap Contract is a contract in which two parties promise to make payments to one another on scheduled dates in the future. Swaps are not guaranteed by any clearinghouse and are susceptible to default. Corporations and financial institutions are the primary users of swaps.

Trade Credit Insurance

Trade Credit Insurance is a risk management product offered to business entities wishing to protect their balance sheet assets from loss due to credit risks such as protracted default, insolvency and bankruptcy. Trade Credit Insurance often includes a component of political risk insurance, which insures the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation, etc.

Working Capital

Working Capital, or current capital, is cash available for day to day operations of a firm. It is computed by deducting current liabilities from current assets. Amount of available working capital is a measure of a firm’s ability to meet its short-term obligations. In the normal trade cycle of a firm, working capital equals working assets.