A collection of key terms used throughout the FGI Finance website
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Accounts Receivable:
AR is defined as money owed to a company by a customer for products and /or services sold. Accounts receivable
are considered a current asset on a balance sheet once an invoice has been sent to the customer.
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Accounts Receivable Financing:
A method of financing where a company sells their accounts receivable, at a discount. In exchange for working
capital. The lender assumes the credit risk of the debtors and receives the cash when the debtors settle the account.
An A/R credit line is determined by the financial strength of the customers, not the borrower. |
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Asset Based Lending:
An asset-based loan 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. |
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Commercial Finance:
Commercial Finance is general 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 borrowers cash flow to repay the loan. |
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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. |
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Credit Report:
A business 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. |
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Cross-Border Sales:
Cross-Border Sales refers to any sale that is made between a firm in one country and a firm located in a
different country. |
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Facility:
A form of debt financing in which a loan is extended by a bank or debt financer to a business for operating capital. |
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Factoring:
The selling of a company's accounts receivable, at a discount. The lender assumes the credit risk of the debtors
and receives the cash when the debtors settle the account. Also known as accounts receivable financing. |
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Foreign Bank Draft:
A check from one foreign bank to another, where payment is guaranteed to be available by issuing bank. |
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Foreign Exchange:
Foreign exchange is the rate at which one currency is converted into another. |
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Foreign-Currency-Option Contracts:
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. |
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Forward Transaction:
An agreement to buy one currency and sell another at a future date at a specific exchange rate. The determined
foreign exchange rate eliminates exchange rate risk. |
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Insolvency:
When a company is unable to meet debt obligations. |
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Interest Rate:
A fee for borrowing money from a bank or institution. The fee is usually an annual percentage of the
amount borrowed. |
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International Lending:
Also known as offshore lending or cross-border financing, international lending occurs when a lender and borrower
are in different countries. |
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Invoice Discounting:
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. |
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Middle Market:
A company is considered middle market, or medium-sized, when it has 10 to 100 employees and revenues of $10 million to $50 million. |
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Participation / Joint Finance:
When a large loan exceeds the lending limit of one individual lender and are shared among two or more lenders. |
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Receivable Management:
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. |
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Risk Management:
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. |
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Secured Funding:
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. |
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Special Purpose Entity:
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. |
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Sponsor Finance:
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. |
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Spot Transaction:
A foreign exchange transaction in which an agreed upon price is set and funds are transferred within two
business days. |
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Structured Trade Finance:
Cross-border trade finance in emerging markets where the intention is that the loan get repaid by the liquidation
of a flow of commodities. |
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Swap Contracts:
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 are susceptible to default. Corporations and financial institutions
are the primary users of swaps. |
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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. |
