Finance can be confusing, to say the least. And much of that confusion comes from not fully understanding what certain words and terms mean. Below, we clear up some commonly misunderstood financial terms:
Accounts receivable
This term refers to money owed to you by clients. Most companies send Invoices and Statements outlining the amount due and due date.
Insolvency
When an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. Insolvency can lead to insolvency proceedings, in which legal action will be taken against the insolvent entity, and assets may be liquidated to pay off outstanding debts
Bankruptcy
When a borrower — be it an individual or a company — cannot repay its debts, it goes into bankruptcy. This legal process involves valuing and selling off assets to pay back all debts.
Invoice Discounting
A form of short-term borrowing often used to improve a company’s working capital and cash flow position. Invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid.
Factoring
Also known as Accounts Receivable Factoring and Invoice Factoring, factoring is a way for businesses to acquire the funds they need. With factoring, a company sells its invoices to a factor company for cash.
Rating
In the finance world, this word refers to the ability of a company to repay its debts. The assessment is made by a ratings agency and is based on the company’s creditworthiness.
Working capital
A company’s working capital is measured by its ability to make payments within the next 12 months. To calculate a business’ working capital, subtract its liabilities from its current assets.
At Celtic Invoice Discounting, we could not make funding your business any easier! Don’t let misunderstanding these or any financial terms cause cash flow issues for your company. Feel free to call us with any questions: 01-230 0866. Our expert staff can help explain any finance words or terms that may be confusing you.
