FACTOR (From the latin Facere, to make or to do.) – One who acts or transacts for another, i.e., a steward or bailiff for another's estate and/or business interests.

Accounts Receivable – These are amounts due from our client's customers for goods shipped or services rendered by the client. Accounts receivable are always evidenced by invoices detailing the goods shipped or the services provided.

Advance Rate – This is the formula that determines the amount of money a client is able to borrow against eligible accounts receivables. All borrowing arrangements at Milberg, whether advance factoring or commercial financing, have a base Advance Rate. So, for example, if a client has an Advance Rate of 80%, this means that for every $100 of eligible accounts receivable, the client can borrow up to $80 dollars. Borrowing arrangements may also include Overadvance Lines (see below).

Advance Factoring – This is a factoring arrangement that allows the client to borrow against factored accounts receivable. Other factoring arrangements that do not involve borrowing are Collection Factoring and Maturity Factoring (see below).

Air Release or Steamship Guarantee – Often times, when an importer brings in goods under a letter of credit, the importer usually must wait for the issuing bank to receive certain documents from the supplier or supplier's bank before the importer can pick up goods at the port of entry. An "air release" for air shipments and a "steamship guaranty" for boat shipments allow the importer to pick up the goods before the bank receives complete documents. "Air releases" and "steamship guarantees" are essentially guarantees of payment and waivers of discrepancies in the relevant paperwork. Discrepancies normally allow the importer to reject the shipments and prevent the supplier from being paid.

Chargeback – These are amounts that the factor deducts both from the client's accounts receivable at the factor and from the Factor Balance (see below). These amounts are usually a result of deductions or allowances taken by a customer when it pays the factor. They also arise from credits against open accounts receivable for goods returned or refused by the customer.

Client / Customer – In the factoring industry, the "client" refers to the factor’s customer. The "customer" refers to the accounts to whom the client sells.

Collections – Amounts that the factor has collected from the client's customers in payment of assigned invoices.

Collection Factoring – This is a factoring arrangement that does not involve lending. This type of arrangement is used by clients that want to be protected against bad debts and outsource the management of their accounts receivable, but that do not need to or wish to borrow from the factor. The factor remits payments to the client in respect of factored accounts receivable as they are collected or, in the case of customers that become insolvent, following their insolvency.

Concentration – This refers to the situation where one customer accounts for 25% or more of the outstanding accounts receivable of a client.

Credit Approval – When a factor issues a "credit approval," the factor has guaranteed the financial ability of the customer to pay amounts due for the orders so approved. All credit approvals are contingent upon client’s adherence to order amounts, delivery dates and terms of sale as originally presented to the factor.

Credit Balance – This is the balance that is due to the client from the factor. The "credit balance" will increase as a result of sales assigned to the factor and decrease as monies are advanced to or paid to the client. So, for example, if a client sells a customer $100 worth of merchandise and assigns that invoice to the factor, the client would have a credit balance of $100. Any advances to the client or deductions by the customer would reduce this balance.

Debit Balance – In the event the factor advances funds to the client in excess of the accounts receivable assigned to the factor, the client's account would be said to be in a "debit balance." So if, for example, the client assigns $100 of accounts receivable to the factor and then borrows $150, the client's account would be in a debit balance of $50 ($150 less $100). See also "Overadvance" below.

Department Risk or D/R – This is an old factoring term that refers to accounts receivable that the factor did not credit approve. If a client sells to a customer without obtaining credit approval from the factor, the client is, in effect, taking the responsibility for bad debts upon himself. So, if the customer ultimately does not pay its bills because of a financial inability to pay, the client has no recourse to the factor.

Dilution – The amount of total chargebacks of accounts receivable over a period of time. (See "Chargeback" above.) For example, if a client generates $10,000,000 in total sales over the course of a year and his customers take $100,000 in deductions, the client's dilution rate is 1%.

Dispute – When a customer is not paying a bill for a reason other than financial inability to pay, the invoice is placed in dispute and the nature of the dispute is noted, e.g., "Customer claims goods were never received." At Milberg, factored clients are immediately notified about disputes in hopes of resolving them to enable their customers to pay.

Eligible Accounts Receivable – This refers to accounts receivable the lender is willing to advance funds against. These amounts generally exclude accounts receivable that are long past due, in dispute, owed to affiliated companies, owed by non-creditworthy customers, or against which there is an offsetting payable.

Factor Balance – This is the amount either owed by the factor to the client or by the client to the factor. (See "Credit Balance" and "Debit Balance" above.) The Factor Balance is generally a function of sales assigned to the factor less monies remitted to or advanced to the client and deductions taken by customers.

Maturity Factoring – This refers to a factoring arrangement in which the factor remits monies to the client based on the maturity, or the average due date, of accounts receivable assigned to the factor in a given month. This type of arrangement is much less common today and is used only with certain "wholesale" accounts, where the client's customers are manufacturers, not retailers. Much more common today are "Advance Factoring" and "Collection Factoring" arrangements (see above).

Overadvance – An "overadvance" is another term for a "debit balance," where a factor has advanced funds to a client that exceed the accounts receivable balance assigned to the factor.

Reserve – This is the amount held back by the lender or factor from what the lender is willing to advance to the client against collateral assigned to the lender. Generally speaking, this is the inverse of the Advance Rate. So if, for example, the lender establishes an 80% Advance Rate against accounts receivable, the balance, or 20%, is often termed the "Reserve." The "Reserve" may also include other amounts held back, such as ineligible accounts receivable.