Factoring glossary

Terminology used in factoring

Adjustment
An adjustment entry made on the debtor’s account.
Reasons may include payment discrepancies or discounts.

Ageing balance
A document indicating the breakdown of each debtor’s balance, according to expiry date.

Approval (guarantee cap)
The maximum balance that CGA agrees to guarantee if the debtor is insolvent. The approval is given by the debtor on an amount inclusive of taxes.

Assignment clause
A clause included in the text of invoices or accounts receivable, based on the client’s contractual obligation to inform debtors of the existence of a factoring contract. The clause stipulates that payment must be made to CGA, for the settlement to take place.

Assignment under Dailly law
The rules on the assignment of business receivables for the benefit of credit institutions, introduced in the “Dailly” law no. 81-1 of 2/01/1981.

Availability
The balance on the client account, less any non-fundable receivables.

Client
The company that signs the factoring contract with CGA.

Client account
An account opened on CGA’s books, in the client’s name, which records all the transactions carried out in connection with the factoring contract.

Debtor
The customer of our client.

Debtor account
An account opened for each debtor on CGA’s books, containing the relevant entries.

Debtor outstanding / debtor balance
The total amount of the unpaid receivables assigned to CGA.

Direct settlement
Payment made directly by the debtor to the client. A direct settlement must be returned to CGA immediately, or refunded if it was a bank transfer.

Dispute
A dispute raised by the debtor in relation to the invoices assigned to CGA.

Extended term
The extension, by agreement with CGA, of the due date of a receivable, or settlement after the due date. “Extension commission” is payable when the extended term is more than the maximal number of days expected in the contractual documentation after the initial due date.

Factor
Synonym for factoring company.

Factoring commission
Commission for the services provided. It is charged ‘ad valorem’ (according to value).

Financial default
Suspension of payments verified by insolvency proceedings.

Financing
At the client’s request, a withdrawal from the client account, up to the limit of the available balance (share of the total).

Financing cap
The maximum amount the client is contractually authorised to withdraw from the available balance on the client account.

Funding limit
The maximum balance that CGA agrees to fund for a debtor.

Fund in use commission
Commission that remunerates the early provision of funds, until payment is made by the debtor, or until the CGA guarantee takes effect. It is calculated on a pro rata basis in proportion to the elapsed time.

Guarantee fund
A fund intended to cover any incident that could reduce the total of the assigned receivables (credit notes, rebates etc.).
The amount of the guarantee fund, and the terms and conditions, are agreed in the contract.

Incidents
Credit notes and reassignments.

Long-term receivable
A receivable whose initial payment date is more than the maximal number of days expected in the contractual documentation. Long-term receivable commission is applied to such accounts.

Non-recourse factoring contract
A contract under which CGA assumes the risk of the debtor’s financial default.

Notification letter / Introductory letter
A letter sent by the client to all debtors, to inform them of its contractual relations with CGA.

Payment under guarantee
A guarantee that the outstanding receivables will be paid at the end of the waiting period, up to the approved limit.

Reassignment
Retrocession of a receivable by debiting the client account.

Recourse factoring contract
A contract under which CGA does not assume the risk of the debtor’s financial default.

Recourse right
The option for CGA to debit the client account if:

• an approved receivable is not paid for reasons other than default by the debtor;
• a non-approved receivable remains unpaid.

 
Remittance note
A document issued by the client to CGA, summarising the invoices or receivables transferred.

Subrogation
The legal basis for the transfer of receivables between the Client and CGA. Under French law, conventional subrogation is defined in Article 1250 – 1 of the Civil Code.
When an account receivable is assigned, subrogation takes place when a notice of assignment is signed, and when CGA credits the amount to the client’s factoring account.

Supporting documentation
Any document, such as an order form or delivery note, that provides evidence that the receivable transferred to CGA is due and payable.

Unavailable funds
The balance of non-fundable invoices.

Waiting period
The period between the due date of the invoice, and the payment under guarantee.