This alphabetic Glossary includes three sets of definitions covering the main terms and expressions used in the document:

The definitions used are drawn from a variety of sources, including definitions already used in official publications, from other sources defining terms commonly experienced in business, and expressions defined by the authors of this document as a guide to understanding.

A | B | C | D | E | F | G | H | I | K | L | M | N | O | P | R | S | T | U | V | W

SCF techniques and related expressions and categories
Parties engaged in SCF transactions
Components and subordinate expressions

A

Account receivable: a legally enforceable claim for payment held by a business entity against its customer for goods supplied or services rendered in execution of the customer’s order, and recorded on the balance sheet. Such claims generally take the form of invoices raised by a business and delivered to the customer for payment within an agreed timeframe
Account payable: a legally enforceable liability to a creditor recorded in the balance sheet, usually arising from purchases of goods and services on an open account basis and evidenced by a received invoice due to be paid within an agreed timeframe
Advance: an extension of credit by means of a loan. Advance is a synonym for a loan herein.
Advance payment: a payment made in advance of a prescribed event such as a due date or a contact commencement
Advance ratio: the maximum percentage of the value of an asset or assets by reference to which a finance provider is prepared to make a loan or make available credit. The value of the asset or assets is reduced in the calculation by a Security margin, which is the inverse of the advance ratio. Where the advance ratio is 100%, the underlying finance may be termed 100% financing and may arise from a Commitment to Pay
Anchor party: a party usually a large buyer who facilitates a buyer-led supply chain finance programme for its suppliers and whose credit risk is the economic basis of the finance provided. It is also used to describe a large seller, which orchestrates a programme of Receivables Purchase financings in relation to its customers
Anti-Money Laundering (AML): anti-money laundering regulations are a set of procedures, laws and regulations designed to stop the practice of generating income through illegal actions. In most cases money launderers hide their actions through a series of steps that make it look like money coming from illegal or unethical sources was earned legitimately
Approved Payables Finance: a synonym for Payables Finance, a defined SCF technique herein
Asset-based lending or finance: not treated herein as an SCF technique but as a ‘super-category’ or umbrella term used by finance providers to describe their business lines, organisational units and activities. Asset-based lending or finance usually refers to a range of finance products secured by receivables, inventories and fixed assets
Assignee: a person, company or entity that receives the transfer of property, title or rights under a legal arrangement
Assignment and assignment of rights: a transfer of rights to an asset by means of an outright purchase for the purpose of either becoming the absolute owner, or in order to take a security interest in the asset. Assignments and their equivalent are jurisdictionally specific and the reforevary widely in terms of legal basis and form
Assignor: a person, company or entity that transfers property, title or rights to the assignee under a legal arrangement
Audit: the process by which financial records, business processes, and information systems are independently verified by an internal or external auditor
Availability: the unutilised amount of funding or credit under a financing arrangement that could be potentially drawn or used following satisfaction of conditions precedent, transaction criteria,or requirements relating to permissible security
Aval: a guarantee added to a debt obligation evidenced by a financial instrument by a third party who is not the payee or the holder, but who ensures payment should the issuing party default. The debt obligation could be a promissory note, bill of exchange, draft, note, or bond. The third party providing the aval is usually a bank or other financial institution

B

Bad debt: a debt that is not collectible and needs to be written off
Ban on assignment: a clause within a debtor’s conditions of business, which specifically bans the assignment of the benefits or proceeds of a sale by a supplier, thereby refusing to accept the assignment of the invoice. Such bans are increasingly being challenged by legislators and the financial industry as an impediment to the raising of receivables related finance
Bank: a regulated financial institution licensed to receive deposits and undertake a range of activities such as commercial, retail and investment banking
Bank Payment Obligation (BPO): an inter-bank instrument to secure payments against the successful matching of trade data. As per the Uniform Rules for Bank Payment Obligations, the Bank Payment Obligation (BPO) means ‘an irrevocable and independent undertaking of an Obligor Bank to pay or incur a deferred payment obligation and pay at maturity a specified amount to a Recipient Bank following Submission of all Data Sets required by an Established Baseline and resulting in a Data Match or an acceptance of a Data Mismatch’ (URBPO, ICC Publ. No. 750E).The BPO is not strictly an SCF Technique, but is an ‘enabling framework’ for the provision of various forms of SCF and other services
Baseline: a term within the BPO rules defining the criteria (e.g. a dataset including a Purchase Order) required for a successful data match in a Transaction Matching Application (TMA)
Bill Discounting: can be used as a synonym for Forfaiting, a defined SCF technique herein, as well as for the discounting of any bill of exchange for example arising under a letter of credit and can also be a variation of Receivables Discounting
Bill of exchange: an unconditional order in writing, addressed by one person (the drawer) to another (the drawee), signed by the drawer, requiring the drawee to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer. A bill of exchange must be accepted by the drawee to be binding on it. Additional legal requirements may exist depending on the relevant jurisdiction
Bill of Lading: a document which evidences a contract of carriage by sea and the taking over or loading of the goods by the carrier, and by which the carrier undertakes to deliver the goods against surrender of the documents. A provision in the document that the goods are to be delivered to the order of a named person, or to order, or to bearer, constitutes such an undertaking (source: The Hamburg Rules 1978)
Borrower: an entity that is lent money by a Finance Provider and who pays it back over time on an agreed basis
Borrowing base: the amount of money a lender will loan to a borrower based on the value of the collateral or security that the borrower pledges. The borrowing base is usually determined by margining, where the lender determines a discount factor that is multiplied by the value of the collateral; the result is the amount that will be loaned to the company. See Advance ratio
Buy-back agreement or guarantee: an agreement between a purchaser and a seller in which the seller agrees to repurchase goods or property from the purchaser if a certain event occurs within a specified period of time. The buy-back price is usually set out in the agreement. It is specifically used in the context of Distributor Finance, a defined term herein
Buyer: in the context of supply chain finance, a buyer is a corporate entity procuring goods and services, issuing orders and making payments to the suppliers, which form its supply chain
Buyer credit: financing that is put in place by a buyer to purchase goods or services or provided for its benefit by a third party such as an ECA. Contrast with a Supplier credit. Buyer credits may be incorporated into SCF transactions
Buyer (Forfaiting): in a forfaiting transaction, a buyer refers, in the primary market, to the primary forfaiter who initially purchases a financial instrument or claim from an issuer or obligor and, in the secondary market, refers to a purchaser of the financial instrument or claim from the primary forfaiter or any subsequent buyer
Buyer-centric: a description of an SCF transaction where the origination usually takes place through a relationship with a buyer, sometimes referred to as the anchor party
Buyer-centric SCF: a synonym for Payables Finance, a defined SCF technique herein

C

Channel Finance: a synonym for Distributor Finance, a defined SCF technique herein
Client: a client or customer of a finance provider. In the context of the latter usage, the word client is used for the client of a finance provider. It is also used extensively to describe the user of a service offered by a professional, or generally as a synonym for customer
Collateral: property or other assets that a borrower or a third party offers a lender to secure a loan or extension of credit. If the borrower stops making the promised repayments and/ or interest and finance charges, the lender can take possession of the collateral to recoup its losses by means of sale. The legal perfection of collateral is jurisdictionally specific and takes many forms. Collateral is often subject to Collateral Management procedures, e.g. collateral in a
warehouse. Collateral has synonyms in the form of Security or a security interest
Collection: refers to the general (cash) collection function of a business operating to collect funds for all outstanding invoices before they become overdue, by means of electronic payments, cheques, cash, documentary credits and collections and other means of payment
Commercial Finance: not treated herein as an SCF technique but as a ‘super-category’ or umbrella term used by Finance Providers to describe their business lines, organisational units and activities. Commercial Finance is usually used as a generic term for a range of asset-based finance services
Commitment to pay: an obligation made by a party such as a finance provider to make a payment to meet a specified obligation at a future date
Committed facility: a credit facility that is committed to be available for a stated period under specific conditions and is formally recorded as an obligation of a finance provider. The committed nature of the facility requires a more stringent credit assessment than is the case with an Uncommitted facility
Committed facility: a credit facility that is committed to be available for a stated period under specific conditions and is formally recorded as an obligation of a finance provider. The committed nature of the facility requires a more stringent credit assessment than is the case with an Uncommitted facility
Commodity Finance: not treated herein as an SCF technique but as a ‘super-category’ or umbrella term used by Finance Providers to describe their business lines, organisational units and activities. Commodity Finance is oriented towards the specialised market segment of commodity traders and processors and combines the use of SCF and a variety of other, often customised, financial services to meet their needs
Commodity: a commodity is a raw material, e.g. foodstuff, metal ore or refined product, crude oil or oil product, for which there are normally liquid markets and which represent attractive collateral for the provision of finance
Confidential Factoring: a variation of factoring defined herein, in which the factored invoice or receivable is not subject to a notice of assignment and the buyer, is not aware of the factoring agreement between the seller and the finance provider. The term Confidential may also be applied to Receivables Discounting and Invoice Discounting
Confirmed or Confirmation: confirmation by one party to another that an obligation or contract has been accepted and will be discharged. In the case of a Letter of Credit, upon request by the issuing bank, the advising bank adds its confirmation to the Letter of Credit, meaning that it commits itself to honour the payment in case the issuing bank fails to fulfil its obligation. A confirmation is a separate irrevocable and abstract undertaking to honour or negotiate complying document under the Letter of Credit ruled by UCP 600
Confirmed Payables: a synonym for Payables Finance, a defined SCF technique herein. Confirming is also used in Iberia to describe a variation of Payables Finance based on local practices
Confirming: a variation of Payables Finance, typically provided in Spain under a local structure
Contract Monetization: a synonym for Pre-shipment Finance, a defined SCF technique herein. Contract monetization is used more widely as a financial technique, outside the SCF and trade environment
Corporate client: a customer of a Financial Institution, which is an incorporated business entity of all kinds and ranging in size from a multinational, large domestic corporation, to a small and medium-sized business
Correspondent bank: a financial institution that provides services on behalf of another financial institution. A correspondent bank can conduct business transactions, accept deposits and gather the proceeds of trade transactions on behalf of the other financial institution. Correspondent banks are more likely to be used to conduct business in foreign countries, and act as a domestic bank’s agent abroad
Correspondent factor: a finance provider that acts as an Import Factor or Export Factor under the Two-Factor system
Counter-trading: a situation where two trading parties are buying and selling goods and/or services to each other, thus creating mutual obligations to settle invoices in both directions, or settle differences only
Country risk: a collection of risks associated with investing in or creating exposure to a particular country. These risks include political risk, exchange rate risk, economic risk, sovereign risk and transfer risk, which is the risk of funds being frozen for external transfer by government action. Country risk varies from one country to the next
Credit control: the system and procedures used by a business to manage its sales ledger, make certain that it extends credit only to customers who are able to pay, and that customers pay on time
Credit enhancement: methods by which a finance provider is provided with additional rights, such as collateral, insurance, or a third party guarantee, to secure payment by a borrower or obligor
Credit Insurance: insurance purchased by businesses to insure payment of sums due in relation to credit extended to trade debtors. It may be used as is a form of credit enhancement to protect finance provider providing receivables finance
Credit note: a document issued by the seller of goods or services to the buyer, reducing the amount that the buyer owes to the seller under the terms of an earlier invoice. This may be due to a failure to deliver invoiced goods, a return of goods, or as the result of a dispute
Credit rating: an evaluation of the credit worthiness of a debtor, a business or a government, but not individual consumers. The evaluation is made by a credit rating agency of the debtor’s ability to pay back the debt (both short term and long term) and the likelihood of default. A rating is usually reflected in a grading range such as AAA to C
Credit risk: the risk that a borrower or obligor will default on any type of debt or contractual obligation by failing to make required payments
Credit risk insurer: an entity which offers to insure credit and, usually, political risk in relation to one obligor or transaction or a portfolio or continuing line of specified trade transaction or obligors. Such entities may be either private companies or public or semi-public institutions such as ECAs
Creditor: an entity that is owed money, often being the supplier or seller of goods and services
Customer: a person or entity which buys goods and services, ranging from a buyer in a supply chain to the user of financial services offered by a finance provider. For the sake of clarity, the latter is described herein as a Client

D

Data match or matching: compares submitted data or datasets with a baseline or criteria and declares a match or non-match in a chosen environment e.g. a matching engine or a TSU (trade services utility)
Dataset: a collection of data usually from a common source and assembled for a particular business or other purpose. The term is used generally to define data that could historically have been brought together in a document, but in an automated process is transmitted as a dataset. Under the rules of the BPO, datasets must be matched prior to a payment obligation becoming due.
Debtor: an entity which owes money under a commercial or financial transaction
Days Payables Outstanding (DPO): an efficiency ratio that measures the average number of days a business takes to pay its suppliers
Days Sales Outstanding (DSO): an efficiency ratio that measures the average number of days a business takes to collect the proceeds of invoices due from its customers, i.e. its average collection period
Dilution(s): every situation that may reduce the value of an outstanding invoice except default by the debtor. Typical causes are returns, credit notes, commercial dispute, etc.
Disclosed or undisclosed: when a finance provider undertakes a transaction such as a Receivables Purchase it may or may not be advised to or disclosed to the underlying debtor. Undisclosed might be described as Confidential or Non-Notification as in Confidential or Non-Notification Factoring
Discount rate or charge: when a purchaser purchases a bill of exchange or an account receivable from a seller, the rate at which it is paid (discounted relative to its face value) prior to its maturity date
Discounting of Promissory Notes: a synonym for Forfaiting, a defined SCF technique herein
Distribution or third party distribution: a general term for the various methods of selling or sharing financial risk (both funded and unfunded) in an underlying financial transaction with investors such as another financial provider, insurer or other. Typical examples are Syndication and Sub-Participation
Distributor: a person or entity that supplies goods on a wholesale basis to retail outlets or companies. It may be a manufacturing entity, an arm of a manufacturing entity or an independent entity
Distributor Finance: a defined SCF technique herein where a finance provider provides financing for a distributor of a large manufacturer to cover the holding of goods for re-sale and to bridge the liquidity gap until the receipt of funds from receivables following the sale of goods to a retailer or end-customer
Documentary collection: the handling by banks of documents in accordance with instructions received in order to obtain payment and/or acceptance, or deliver documents against payment and/or against acceptance, or deliver documents on other terms and conditions, if subject to internationally recognised rules of practice issued by the International Chamber of Commerce (ICC). ICC’s current publication is called Uniform Rules for Collections (URC 522). This publication also defines the documents handled thereunder
Documentary Letter of Credit: an irrevocable undertaking by an institution (the issuing bank) to the beneficiary of the Documentary Letter of Credit on behalf of their client to pay the stated amount at sight or at a determinable future date or to accept a draft and effect payment at maturity subject to the presentation of compliant documents as stated in the terms and conditions of the Letter of Credit. They are usually subject to internationally recognised rules of practice issued by the International Chamber of Commerce (ICC). ICC’s current publication is called Uniform Customs and Practice for Documentary Credits (UCP) 600
Documentary Trade Finance: a term that covers a large element of the traditional trade finance market relating to instruments such as Documentary Credits, Documentary Collections and Guarantees, which are usually governed by rules published by the ICC (e.g. UCP 600 for Letters of Credit (or later version) or URC 522 for Collections or URDG 758 for Guarantees). Although not SCF techniques in their own right, these instruments can be incorporated into SCF transactions or used alongside SCF techniques
Domestic Factoring: a variation of Factoring defined herein, in which the buyer is situated in the same country as the seller. Country-specific rules or regulations may apply due to the domestic character of the transaction
Double-financing or Double-pledging: the fraudulent practice of raising funds more than once on the same receivable or other asset
Draft: an alternative term for a bill of exchange or check/cheque
Due diligence: an investigation or audit of a potential investment or transaction. Due diligence serves to confirm all material facts in regards to a transaction. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party
Draft: an alternative term for a bill of exchange or check/cheque
Due diligence: an investigation or audit of a potential investment or transaction. Due diligence serves to confirm all material facts in regards to a transaction. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party
Dynamic discounting: describes a number of methods through which early payment discounts on invoices awaiting payment are offered to sellers and funded by the buyer. The service is dynamic in the sense that the earlier the payment the higher the discount

E

Early payment: in receivables purchase, early payment is often used to portray the transaction as early payment of an invoice and is sometimes used as a synonym for receivables discounting
Electronic invoicing: e-Invoicing is the exchange of the invoice document between a seller and a buyer wholly in an integrated electronic format or dataset. Traditionally, invoicing, like any heavily paper-based process, is manually intensive and is prone to human error resulting in increased costs and processing lifecycles for companies
Endorsement: a legal term that refers to the signing of a document which allows for the legal transfer of a negotiable instrument from one party to another
Export Credit Agency (ECA): a financial institution or agency that provides trade financing to exporters. Export credit agencies usually provide guarantees, loans and credit insurance in order to promote exports by removing the risk and uncertainty of payments. Typically, ECA’s provide credit support and less commonly actual financing ECAs may also underwrite the commercial and political risks of investments in overseas markets. ECA insurance may be used in an SCF transaction to provide credit risk enhancement for the Finance Provider
Export Credit Agency (ECA) Finance: a form of trade finance provided by ECAs, which provide guarantees, loans and credit insurance in order to promote exports by removing the risk and uncertainty of payments. Typically, ECA’s provide credit support and less commonly actual
financing. ECA Finance maybe combined with SCF to enhance the risk profile of a transaction
Export Factor: factor involved in the seller’s country or elsewhere in the context of international factoring
Export Factoring: a variation of factoring defined herein, in which the assignor, based in the country of the factor, assigns or sells receivables due by debtors based in another country. It is also included in the definition of International Factoring

F

Face value: the principal or redemption value of a financial instrument or claim
Factor: a financial institution providing factoring facilities
Factoring: a defined SCF technique herein as a form of Receivables Purchase, in which sellers of goods and services sell their receivables (represented by outstanding invoices) at a discount to a finance provider (commonly known as the ‘factor’). A key differentiator of Factoring is that usually the finance provider becomes responsible for managing the debtor portfolio and collecting the payment of the underlying receivables
Factoring agreement: the agreement between the finance provider (factor) and a client setting out the terms on which a factoring arrangement is made available, including scope, charge, operational procedures and security to be taken
Finance provider: a bank, financial institution, or other regulated or non-regulated provider of finance and related services, specifically herein in the context of supply chain finance
Financial institution: a provider of financial services in the broad sense, usually referring to banks and other regulated entities such as insurance companies, investment dealers and trust companies. It includes, by definition, a range of non-bank financial institutions
Financial instrument: a tradable asset of any kind; either cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument. In Forfaiting, rights under the financial instrument are normally independent of the underlying transaction which gave rise to the financial instrument, since they rely on the legal obligations created by the legal status of the financial instrument itself
Financial Supply Chain: the chain of financial processes, risk and liquidity management decisions, events and activities that provide financial support to the physical supply chain
Financial Supply Chain Services: not treated herein as an SCF technique but as a ‘supercategory’ or umbrella term used by Finance Providers to describe their business lines, organisational units and activities. Financial Supply Chain Services include a range of services such as purchase order management and electronic invoicing, payments and cash management and supply chain finance
Financier: a general expression for any person or entity that provides finance in various forms.
Financing margin: a margin built in to an interest rate or discount rate charged to a client to cover risk and a level of profit for the finance provider
Floor Plan Finance: is a synonym for Distributor Finance, a defined SCF technique herein, specifically relating to finance of vehicles and machinery placed for sale on the sales floor of a dealer
Forfaiter: a provider of forfaiting services, either being a bank or a non-bank financial institution.
Forfaiting agreement: under the Uniform Rules for Forfaiting, the agreement between the initial seller and the primary forfaiter
Forfaiting: a defined SCF technique herein and is a form of Receivables Purchase, consisting of the without recourse purchase of future payment obligations represented by financial instruments or payment obligations (normally in negotiable or transferable form), at a discount or at face value in return for a financing charge
Four-corner model: a situation where two trading parties are using the services of separate financial institutions or service providers and use their services acting on an interoperable basis to carry out intermediation functions of various kinds

G

GRIF: General Rules for International Factoring, which the members of FCI (now including IFG) agree to adopt when transacting two factor cross border factoring
Guarantee: any signed undertaking however named or described, provided for payment (by the guarantor) on presentation of a complying demand. Guarantees may by also subject to internationally recognised rules of practice issued by the International Chamber of Commerce (ICC) URDG 758 Guarantees, both financial and performance-related, issued by finance providers, form an important category of traditional trade finance techniques. More generally, a Guarantee is a promise to take responsibility for another party’s financial obligations, if that party cannot meets its obligations. The party assuming this responsibility is called the Guarantor

H

Hedging: a hedge is an investment position intended to offset potential losses/gains that may be incurred by a physical position in or exposure to commodities or financial assets. In simple language, a hedge is used to reduce the potential for any substantial unexpected losses or gains suffered by an individual or an organisation. Hedges are typically taken out in the form of exchange-traded futures contracts and options, or similar transactions in the over-the-counter market. Where an entity has an offsetting position within its own operations, this can be said to create a ‘natural’ hedge

I

Import Factor: factor involved in the buyer’s country or elsewhere in the context of international factoring
Import Factoring: a variation of factoring defined herein, in which an export receivable is managed and collected by an import factor based in the same country as the debtor. It is also included in the definition of International Factoring and sometimes referred to as Correspondent Factoring
Initial seller (Forfaiting): the person who first sells a payment claim or receivable to a primary forfaiter or creates a receivable or payment claim and transfers it to the primary forfaiter
Insolvency: this will occur when an entity can no longer meet its financial obligations with its creditors 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
Inter-Factor agreement: an agreement between correspondent factors whereby they mutually agree to act as import and export factors under a code of practice
International Factoring: a variation of factoring defined herein, in which the buyer (debtor) is situated in a different country from the seller. Country-specific rules or regulations may apply due to the international character of the debt which could affect the relationship between the finance provider, the buyer and the seller. For these reasons, often two Factors are involved, one in the buyer’s country (known as the ‘Import Factor’) and one in the seller’s country (known as the ‘Export Factor’). The two Factors establish a contractual relationship to service the buyer and the seller respectively (called the ‘Two Factor System’). Typically, the two factors use the established frameworks provided by either Factor Chain International (FCI) or International Factors Group (IFG)
International Factoring organisations: organisations that act as trade associations for factoring companies and which usually manage international rules for the conduct of international factoring transactions
Inventory Finance-borrowing base: a variation of loans and advances against inventory defined herein, whereby the amount of finance is made available against a calculated market value of the goods (which could be of more than one type) being financed less a margin which will vary according to the quantity or quality of the goods
Inventory Finance-repo: a variation of Inventory Finance defined herein, whereby the finance provider enters into a sale and repurchase agreement for the goods being financed
Invoice discounter: a provider of invoice discounting facilities
Inventory Finance-tolling: a variation of Loans and advances against inventory defined herein, whereby the finance is provided to allow raw materials or components to be submitted to a third party refining or manufacturing process prior to onward sale
Invoice: is a document, or electronic version of the document, addressed by a supplier of goods and services to a buyer recording and describing a transaction for the supply of goods and services, requesting payment by a specified due date, and setting out any applicable taxes to be collected and remitted to a tax authority
Invoice Discounting: a synonym for Receivables Purchase, a defined SCF technique herein and is also used as a variation of factoring. The term is therefore subject to varying usage
Islamic Trade Finance: trade finance which complies with Islamic (Shari’ah) law. Interest cannot be charged. Instead the finance is structured using discounts, sale/lease, profit participation or repurchase agreements. It may be integrated into SCF transactions.

K

Know Your Customer (KYC): the process of a business verifying the identity and standing of its clients and the character of the business or transactions they generate. The term is also used to refer to the legal regulations which govern these activities

L

Large value: a high monetary value of the items to be financed. Such large value may result from either a large or low volume of items and specifically triggers considerations related to credit and concentration risk
Large volume: a high number of individual items or transactions that usually calls for automated (‘straight-through’) processing and a technical and operational infrastructure capable of handling such volume
Lender: an entity that provides loans under an agreed credit facility or another form of credit akin to a loan
Loan: making available money to another party in exchange for future repayment of the principal amount with interest or other finance charges. A loan may be for a specific, one-time amount or can be available as a variable credit line or overdraft up to a specified ceiling amount. It is also possible to make loans of actual real and financial assets
Loan or Advance against Inventory: a defined SCF technique herein and is financing provided to a buyer or seller for the holding or warehousing of goods (either pre-sold, un-sold, or hedged) and over which the finance provider usually takes a security interest or assignment of rights and exercises a measure of control
Loan or Advance against Receivables: a defined SCF technique herein and is financing made available to a party involved in a supply chain on the expectation of repayment from funds generated from current or future trade receivables and is usually made against the security of such receivables, but may be unsecured
Long warranties: warranties in respect of goods and services that are long lasting and may over time affect the value of receivables purchased or discounted
Low value: a lower monetary value relating to the individual items to be financed. For economic reasons, low-value items are likely to be processed as a large volume business
Low volume: a lower number of individual items or transactions that allows for manual and individual processing on an item-by-item basis

M

Margin (2): the percentage margin added to the cost of funds or a base rate to establish the interest rate to be applied to a loan or credit facility
Margin or Security margin (1): a calculated deduction from the stated or market value of an asset being financed to allow for diminution of the value of the asset, while the finance provider is exposed to a borrower or obligor. See Advance ratio
Maturity date: the date on which the principal amount of a loan, bill of exchange, note, draft, acceptance, bond or other debt instrument becomes due and is due to be paid or repaid to the creditor
Multilateral Institution: a financial institution that provides advice and financing for national or regional development projects or programmes. The institution is usually owned by governments, and provides a framework of cooperation in which borrowers and suppliers of finance are represented

N

Negotiability and transferability: in the case of goods, commodities, property and many financial assets, which are transferable from party to party, the general rule of law is that the transferor cannot transfer to the transferee title better than the transferor possesses. A negotiable instrument is an exception to this rule of law. The holder of a negotiable instrument in the position of being a transferee is not compromised by a fault in the title of the transferor or any other party
Negotiable instrument: a written order or unconditional promise to pay a fixed sum of money on demand or at a future date. A negotiable instrument can be transferred from one party to another by Endorsement. Once the instrument is transferred, the holder obtains full legal title to the instrument. Examples also include bills of exchange, promissory notes, checks/cheques, drafts, certificates of deposit, and negotiable bills of lading
Non- Notification (or Confidential) Factoring: a variation of Factoring defined herein, where the receivables to be financed are not subject to a notice of assignment and the buyer is not aware of the factoring agreement between the seller and the finance provider. The debt verification is done by the finance provider in the name of the seller. The buyer pays the outstanding invoice into a ‘trust’ or ‘escrow’ account. Factoring is usually conducted on a notification basis
Non-recourse: see with and without recourse
Non-recourse Factoring: a variation of Factoring defined herein, in which the receivables to be financed are subject to a ‘true sale’, and the Finance Provider does not have recourse to the seller in the case of buyer default. Factoring is usually conducted on a recourse basis
Notice of acknowledgement: a notice issued by a debtor to a finance provider in which the debtor acknowledges and recognises that the debt (account payable) has been assigned to or purchased by the finance provider
Notice of assignment: a notice which can be issued by a finance provider or by the assignor to a debtor, and which informs the debtor that a debt or debts (accounts payable) have been assigned or purchased by the finance provider. Also known as a Notification
Notification: see Notice of Assignment
Novation: the act of replacing one party to a contract with another, which may include the exchange of new debts or obligations for older existing ones with consent of all the affected parties. Unlike an assignment, obligations as well as rights may be assumed exchanged, depending on the jurisdiction

O

Obligor: a synonym for any Debtor or Creditor under a financial obligation but also more specifically employed as term for a party which is obligated under payment instrument such as a Negotiable Instrument. In Forfaiting such a party is also known as the Primary Obligor. The underlying obligation may be supported by guarantees and similar arrangements provided by other parties, which create other (secondary) obligors
Obligor bank: in a Bank Payment Obligation (BPO) transaction the Obligor Bank is the issuer of a BPO and is obligated to settle it at maturity, when the BPO conditions have been fulfilled through a Data Match
Off-Balance Sheet: a term used to describe an asset, debt or financial transaction that is not reflected as such in the balance sheet of the obligor. Off-Balance Sheet transactions are subject to accounting rules (IFRS, IAS, USGAAP and others)
Open Account: refers to trade transactions between a seller and a buyer where transactions are not supported by any banking or documentary trade instrument issued on behalf of the buyer or seller. The buyer is directly responsible for meeting the payment obligation in relation to the underlying transaction. Where trading parties supply and buy goods and services on the basis of open account terms an invoice is usually raised and the buyer pays within an agreed time frame
Order to cash cycle: represents the process steps and the time interval between receipt of an order, the manufacturing or fulfilment process, delivery and the receipt of cash from the customer

P

Packing Credit or Packing Finance: a synonym for Pre-shipment Finance, a defined SCF technique herein. It owes its origin to traditional trade finance practices whereby a supplier is able to draw down funds under a letter of credit to prepare goods for shipment
Party: a party is any entity that becomes engaged in a financial or commercial transaction, whether a natural or legal person such as a company, corporation, financial institution, unincorporated business or government organisation or not-for-profit entity
Payables Finance: a defined SCF technique herein, and is provided through a buyer-led programme within which sellers in the buyer’s supply chain are able to access finance by means of Receivables Purchase. The technique provides a seller of goods or services with the option of receiving the discounted value of receivables (represented by outstanding invoices) prior to their actual due date and typically at a financing cost aligned with the credit risk of the buyer. The payable continues to be due by the buyer until its due date
Payment: a means of settlement for a commercial or other obligation, such as an electronic credit transfer, direct debit, credit or debit card payment, wire transfer, automated clearing house payment (ACH), check or cash. The payment is completed when good funds are received by the creditor
Performance risk: the risk associated with a party’s ability to meet its obligations under a contract, in particular to procure, manufacture and ship goods, or provide services in a timely fashion according to quality standards
Physical Supply Chain: a term used to describe the totality of the organisations, systems, people, activities, information, and resources involved in moving a product or service from supplier to a buyer
Platform: a business processing capability embedded in an information technology system and its surrounding management
Pledge: a process for taking possession of or, in some jurisdictions, non-possessory security over an asset for the purpose of securing a debt or other financial obligation. The key feature of a pledge is the fact that the creditor maintains possession of the pledged asset, but does not have ownership unless default occurs
Post-shipment finance: a generic expression denoting all the SCF techniques that are employed once shipment has occurred. It will typically include all forms of receivables finance and also include the use of inventory finance
Pre-Export Finance: a synonym for Pre-shipment Finance a defined SCF technique herein, where the goods or services are destined for a buyer in an export market
Prepayment: repaying a loan or financial obligation before its maturity date, or paying in advance for goods or other contractual liability
Pre-shipment Finance: a defined SCF technique herein and is a loan provided by a finance provider to a seller of goods and/or services for the sourcing, manufacture or conversion of raw materials or semi-finished goods into finished goods and/or services, which are then delivered to a buyer. A purchase order from an acceptable buyer, or a documentary or standby letter of credit or a Bank Payment Obligation, issued on behalf of the buyer, in favour of the seller is often a key ingredient in motivating the finance, in addition to the ability of the seller to perform under the contract with the buyer
Primary Forfaiter: the forfaiter which first purchases a financial instrument or claim from an initial seller
Primary market: the marketplace where issuers of debt or other financial obligations deal directly with finance providers to raise funds. This can be described as origination and is contrasted with the secondary market where financial assets are traded and purchased by other finance providers or investors. This is a defined term in the Uniform Rules for Forfaiting
Procure to pay cycle: represents the process steps and time interval between procurement, the issue of a purchase order, delivery of goods and services, receipt of invoice and payment to the supplier
Promissory note: a financial instrument whereby one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee Typically Promissory Notes are negotiable instruments
Purchase order commitment to pay: a commitment issued by a bank in favour of a seller that once goods relating to a specific purchase order have been received by the buyer, the seller will be paid. It is a form of payment guarantee
Purchase Order: a buyer-generated document or dataset that authorises a purchase or procurement transaction sets out descriptions, quantities, prices, discounts, payment terms, date of performance or shipment, other associated terms and conditions, and identifies a specific seller. It is used to control the purchasing of products and services from external suppliers. When accepted by the seller, it forms the basis of a contract binding on both parties. It is also called an order
Purchase Order Finance: a synonym for Pre-shipment Finance, a defined SCF technique herein, where reliance is placed on a Purchase Order issued by a reputable buyer
Purchaser (Forfaiting): see Buyer (Forfaiting)

R

Reassignment: the process of reassigning an asset to the original assignor or to another assignee
Receivable: the amount due from a Debtor or Obligor to a Creditor. This includes, but is more extensive than trade-related Account Receivables and for instance covers the amount due under a Negotiable Instrument
Receivables Discounting: a defined SCF technique herein and is a form of Receivables Purchase, flexibly applied, in which sellers of goods and services sell individual or multiple receivables (represented by outstanding invoices) to a finance provider at a discount
Receivables Finance: a collective expression for the various techniques of Receivables Purchase and Loan or Advance against Receivables, and may also be used as a synonym for such individual techniques
Receivables Purchase: a convenient intermediate category of SCF techniques, which is defined herein and includes SCF techniques such as Receivables Discounting, Forfaiting, Factoring, and Payables Finance and includes a range of synonyms and variations
Receivables Purchase agreement: an agreement between a finance provider and a client (supplier) to cover the purchase of individual or a portfolio of receivables
Recipient bank (BPO): the bank which receives a Bank Payment Obligation (BPO) in its favour and which on meeting the conditions specified in the BPO is entitled to receive money from the Obligor Bank on behalf of a client
Recourse: see with and without recourse
Reserve/Retention: the part of a receivable(s) retained by a factor to cover specific risks such as dilutions
Reverse Factoring: a synonym for Payables Finance, a defined SCF technique herein
Risk Participation: an unfunded Sub-Participation

S

Sale and Repurchase (Repo): an alternative to a loan whereby a finance provider enters into a sale and repurchase agreement for the goods or financial assets being financed. The finance provider acquires title to the goods or financial assets concerned at the commencement of the transaction and reverses the process at a future date. The parties may include a margin to protect against the diminution in value during the life of the transaction. See Advance ratio
Sales Ledger Management: the process of management of a portfolio of accounts receivable including Credit Control defined herein. Under a factoring agreement it is common for the factor to take responsibility for sales ledger management
SCF Intermediation Platform: a technology and business platform, which brings sellers and purchases of SCF financial assets together for the trading and settlement of transactions
Secondary market: the counterpart of the Primary market. In a secondary market financial assets are traded and purchased by other finance providers or investors, not involved in the primary origination of the transaction
® Securitization: the process of taking an illiquid asset, or group of assets, such as a portfolio of receivables, and through financial intermediation, transforming them into a security or tradable financial obligation
Security interest: an interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets
Seller: a supplier of goods and services
Seller (Forfaiting): an Initial Seller and any subsequent seller of the payment claim in the secondary market
Seller-centric: a description of an SCF transaction, where the origination takes place through a relationship with a seller of goods and services
Silent: means undisclosed. See Disclosed or undisclosed. Often used in connection with a Silent Guarantee or Silent Confirmation of a Letter of Credit
SME: a small or medium-sized business
Stop-supply letter: a letter from a seller to a distributor informing it that supply of goods will cease, as a method of protecting the seller’s interests in the event of a distributor being unable to meet its obligations
Structured Trade Finance: a general expression for the provision of finance for trade, where a variety of structures and techniques, which may include SCF techniques, are incorporated into a bespoke transaction or a specific financing solution. Such solutions often involve security being taken over assets, commodities or commercial off-take contracts
Sub-Participation: an agreement between a finance provider who has incurred or is to incur a financial exposure on, or lend funds to, a debtor or obligor and another finance provider under which the second finance provider either provides funds to the first finance provider to fund that exposure or loan (in the case of a funded Sub-Participation) or provides a commitment to cover any losses of the first finance provider (in the case of an unfunded Sub-Participation). Repayment of the second finance provider in the case of a funded Sub-Participation is normally dependant on receipt of corresponding amounts by the first finance provider from the debtor or obligor. This may be, but is not always, the case in the case of an unfunded Sub-Participation. The existence of the second finance provider is normally undisclosed to the debtor or obligor. The second finance provider may, depending on the law of the Sub-Participation agreement, receive a derivative interest in the exposure or loan or may simply acquire rights against the first finance provider rather than the debtor or obligor
Supplier credit: financing arranged by a supplier with or without a finance provider to enable it to provide credit terms to a buyer of its goods or services. Contrast with a Buyer credit
Supplier Finance: a synonym for Payables Finance, a defined SCF technique herein
Supplier Payments: a synonym for Payables Finance, a defined SCF technique herein, and denotes the idea that Payables Finance can be described as offering early payment of an invoice to a seller
Supplier: a party that supplies goods and services to a buyer
Supplier-centric: see Seller centric
Supply Chain Finance: the master definition of SCF, which is discussed extensively herein and is defined as the use of financing and risk mitigation practices and techniques to optimise the management of the working capital and liquidity invested in supply chain processes and transactions. SCF is typically applied to open account trade and is triggered by supply chain events. Visibility of underlying trade flows by the finance provider(s) is a necessary component of such financing arrangements, which can be enabled by a technology platform
SWIFT: the Society for Worldwide Interbank Financial Telecommunication, a member-owned cooperative through which the financial world conducts its business operations using SWIFT’s secure messaging services based on standards. More than 10,800 banking organisations, securities institutions and corporate clients in over 200 countries are connected to SWIFT
Syndication: the process of selling legal or economic interests in loans or other payment obligations to an investor or group of investors by the original arranger of such financing. Syndication may be built into the arrangement of the financing or take place subsequently, but usually promptly, thereafter. The investors may all be parties to a single agreement including the borrower or may be parties to a separate agreement not involving the borrower. The arranger of the financing is usually agent for the investors

T

Tenor: the amount of time left until the maturity date for the repayment of a loan or financial obligation, or the initial term length of same. Tenor can be expressed in years, months or days
Three-corner model: a situation where two trading parties are using the services of the same financial institution or service provider and use its services to carry out intermediation functions of various kinds
Tolling: a process by which raw materials or components are submitted to a third party refining or manufacturing process prior to onward sale
Trade and Export Loans: a general expression for loans made in the context of trade-related financing. They are not defined as a specific SCF technique herein, given the generality of circumstances in which they are granted
Trade Finance: Tnot treated herein as an SCF technique but as a ‘super-category’ or umbrella term used by finance providers to describe their business lines, organisational units and activities. Trade Finance is usually used as a generic term for a range of traditional trade finance techniques and evolving SCF techniques
Transaction Matching Application (TMA): in a BPO transaction the TMA is the matching engine which compares submitted datasets with the baseline and declares a match or non-match. SWIFT’s Trade Services Utility (TSU) is an example of a TMA
Transfer of title: a wide expression often used in relation to the transfer of real property as well as goods and financial assets. In SCF transfer of title is achieved principally by assignment, assignment of rights or endorsement
True sale: an accounting and legal expression connoting that a financial asset or negotiable instrument has been sold by one party to another in the sense of no longer being recorded in the balance sheet of the seller and instead being recorded on the balance sheet of the purchaser. Where this occurs effectively, the purchaser will not be affected by any insolvency proceedings subsequently initiated against the seller and will have unfettered or absolute title to the asset in question. In this sense it is different from secured or collateralised lending. True sale is an important concept which underlies many securitization and financial transactions. Some SCF techniques, such as Forfaiting and Factoring, aim to achieve true sale
Two-Factor System: see International Factoring definition

U

Uncommitted facility: a credit or loan facility, which is uncommitted as to availability or time period
Uniform Rules for Forfaiting (URF800): a set of standard rules for the primary and secondary Forfaiting markets published by the ICC in collaboration with ITFA in effect since 1 January 2013. URF 800 deals with issues such as examination of satisfactory documentation and recourse to sellers of Forfaiting assets. URF 800 includes a set of model agreements

V

Vendor-managed inventory (VMI): a family of business models in which the buyer of a product (business) provides certain information to a vendor (supply chain) supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer’s consumption location (such as a store). It is analogous to the holding of consignment stock

W

Warehouse Finance: a synonym for Inventory Finance, a defined SCF technique herein and reflects the point that inventory being financed is usually located in a warehouse or in similar conditions
Warehouse receipt: a document that provides proof of ownership of commodities or goods that are stored in a warehouse, vault, or depository for safekeeping. Warehouse receipts may be negotiable or non-negotiable. Negotiable warehouse receipts allow transfer of ownership of that commodity without having to deliver the physical commodity or goods. The status of and then nature and scope of the obligations arising under, a Warehouse Receipt or its equivalent will vary according to jurisdiction
Warranty: this generally means a guarantee or promise which provides assurance by one party to another party that specific facts or conditions are true or will happen in relation to goods and services or an obligation to perform
Whole turnover: a provision in factoring, where all the receivables generated by a business are assigned to the factor
With and without recourse: in the case of ‘with recourse’, the finance provider relies on the seller (of a receivable or claim) for any shortfall in the event of non-payment. In a ‘without recourse’ facility or agreement the finance provider relieves the seller of any further liability for the debt and accepts the entire credit risk of non-payment itself. Even where without recourse facilities are provided in respect of the credit risk, it is likely that limited recourse to the supplier is maintained for warranties given in respect of, or disputes arising out of, quality of goods, fraud, and the veracity of the transaction. URF 800 contains a detailed set of rules for recourse for the Forfaiting market
Without recourse finance or discounting: a synonym for Forfaiting, a defined SCF technique herein
Working capital: the financial resources invested by a business in financing its current trading operations usually expressed as the difference between Current Assets (receivables, inventory and operating cash balances) and Current Liabilities (payables and short term debt)
Working Capital Services: not treated herein as an SCF technique but as a ‘super-category’ or umbrella term used by finance providers to describe their business lines, organisational units and activities. Working Capital services typically include short term working capital related financing such as many SCF techniques and related transaction banking services.

RECEIVABLES PURCHASE

ADVANCED PAYABLES

LOANS

ADDITIONAL RESOURCES

Glossary

This alphabetic Glossary includes three sets of definitions covering the main terms and expressions used in the document:

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