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Glossary Factoring

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Accounts receivable accounting

Accounts Receivable Accounting is the monitoring and posting of incoming payments for customers of the factoring customer within the framework of the factoring agreement.

Accounts receivable limit

The limit is the maximum amount up to which the factor assumes the default risk for a customer. The limit is assessed according to criteria customary in banking and credit insurance. The customer limit is checked at the request of the factoring customer, as the receivables exceeding the customer limit are managed in trust by the factor.

Accounts receivable management

Accounts receivable management includes accounts receivable accounting as well as dunning and collection. In real factoring, this also includes regular checking of the creditworthiness of the debtors. The assumption of accounts receivable management is part of the factor's service for its factoring customers.

Active exchange

Through the use of factoring, an asset swap takes place in the balance sheet of a factoring customer: Claims against money. The receivables are transferred from the customer's balance sheet to the factor's balance sheet. This enables the factoring customer to gain liquidity. Alternatively, trade payables or liabilities to banks can be repaid, which can lead to a reduction in the balance sheet.


Discount is the percentage discount on the invoice amount if payment is made within a certain period of time. Agreed discounts reduce the invoice amount and are regularly covered by the security deposit.


Assignee is the new creditor of a claim assigned by the cedant; in factoring, the factor is usually the assignee.

Assignment credit

An assignment credit is a short-term cash loan secured by the assignment of a company's outstanding receivables. As a rule, credit institutions only lend on domestic receivables and only 30 to 60 per cent of the total receivables assigned. Factoring is therefore more interesting from a business management point of view for many companies.

Assignment of claim

According to the legal definition in § 398 BGB, the assignment of claims is the transfer of a claim from one creditor ("assignor") to another ("assignee"). In factoring, this takes place regularly by means of corresponding agreements in the factoring agreement.


The cedant is the previous creditor who assigns his claim to a new creditor (the assignee). In factoring, the factoring customer is regularly the cedant.

Assumption of risk

Del credere of protection

B2B factoring

"Business to Business" means the purchase of receivables from entrepreneurs (cf. § 14 BGB) against other companies, unlike B2C factoring.

B2C factoring

This term, which comes from English ("Business to Consumer"), means factoring of claims of entrepreneurs against private consumers, cf. § 13 BGB, in contrast to B2B factoring.

Bad debt

If a debtor does not pay his invoices and enforcement of the debtor's assets is unsuccessful, this is referred to as bad debt.

Balance sheet contraction

The term balance sheet contraction refers to the reduction of a company's balance sheet total. Factoring transfers receivables from the factoring customer's balance sheet to the factor's balance sheet. In return, the factoring client receives liquidity. This liquidity can then be used to reduce bank and/or supplier liabilities, the balance sheet is shortened. This can increase the equity ratio, a decisive criterion for rating in credit negotiations with banks.

Banker's reference

Bank information from credit institutions contains information on the solvency, creditworthiness and economic situation of the inquirer.

Banking Act

The German Banking Act (KWG) regulates the supervision of credit and financial services institutions, among others. According to the German Banking Act, factoring is a financial service, so that factoring companies are generally to be classified as financial service institutions subject to authorisation and supervision.


Insolvency means the property of a debtor not being able to meet his payment obligations towards his creditors due to insolvency, imminent insolvency and/or overindebtedness. In the event of the factoring customer's insolvency, factoring institutes are generally specially secured as segregation adjusters in accordance with § 47 InsO with regard to the claims belonging to them.

Blanket assignment

Global assignment is the assignment of all current and future receivables.



Central regulators

The invoices of many suppliers, for example to the members of a purchasing cooperation, are entered, processed and settled by a central body through central settlement. Since the members also assign their corresponding claims to the central regulator, factoring must, among other things, ensure that the principle of priority is observed.


Collection is the collection of receivables. As part of factoring, debt collection is part of receivables management and relieves factoring customers.

Collection receivables

Collection claims are claims not purchased by a factor, but only claims assigned in trust for collection.

Concentration clause

The concentration clause determines the maximum permissible amount of the receivables portfolio against a customer in relation to the total portfolio of receivables of a factoring customer.


Closed factoring

Costs of factoring

Factoring costs comprise interest for the financing of receivables and the factoring fee. Additional factoring costs may also arise, for example, for checking the creditworthiness of customers.

Credit insurance

The conclusion of a credit insurance usual in factoring serves to protect against the default risk of the debtor. In contrast to a factor, a credit insurance does not regularly assume one hundred percent of the default risk.

Credit rating

The credit rating is assessed either by a financier, such as a factor itself, or by a rating agency. Information on creditworthiness is also provided by credit agencies or bank information.


The term creditor refers to the person who has a claim against a debtor for the provision of a service or payment of a claim.


Cross-border factoring means factoring across national borders. This may include the purchase of receivables from foreign customers (international factoring) or the acquisition of receivables from foreign factoring customers.

Customer notification

In open factoring, the customer is informed either by the factor itself or by the factoring customer about the assignment of the receivables to the factor. In the notification, the customer is also regularly requested to pay only directly to the factor in future.

Days sales outstanding

The days sales outstanding cover the period from invoicing to receipt of payment. The receivables term is generally longer than the agreed payment term.


Debtor means the obligor of money or goods. In factoring, the term is used for the customer of the factoring customer.

Deduction rate

A deduction ratio is a percentage security deposit for possible impairments of the receivables purchased by the factor through credits, rebates, bonuses, discounts, etc. subsequently granted.

Default case

The del credere case occurs in the event of permanent insolvency of the debtor (insolvency). After a period regularly agreed in the factoring contract, the del credere case is also deemed to have occurred. In addition, the factoring agreement may contain individual provisions for the acceptance of the del credere case.

Default risk

Default risk is the risk of a partial or complete loss of receivables due to the insolvency of a debtor.

Del credere

Delcredere means the liability of the factor for the partial or complete realisation of the default risk of a receivable due to the insolvency of the debtor.

Del credere limit

cf. accounts receivable limit

Del credere protection

The factoring customer enjoys protection against the default of receivables in the event of the customer's insolvency within the scope of the debtor limit; see del credere case; default protection

Del credere risk

cf. default risk

Detail Factoring

In section factoring, a factoring customer sells only a part ("section") of its receivables from customers, for example only receivables from certain customer groups or only from certain products and/or services.


The factor usually pays 80 to 90 percent of the invoice amount after purchase of the receivables. The remaining amount (deduction rate) serves as a security deposit and is transferred by the factor immediately after payment by the customer or occurrence of the del credere case.

Dunning system

Dunning records and manages a company's open, due receivables from its customers. The division concerned is referred to as receivables management.

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Export factoring
Export-Factoring is a form of international factoring for cross-border transactions in goods and services. Companies (exporters) make use of the services of a domestic factor. The latter processes the transaction either directly or with the involvement of a correspondence partner in the respective foreign country.

The factor is the provider of the financial service factoring. The factoring institutes operating in Germany offer their customers various (factoring variants) that are tailored to their needs. The leading German factoring institutes are represented in the German Factoring Association.

Factorability is the suitability of receivables for a purchase in factoring without unilateral risk for the factor. The prerequisite is the existence of a fully completed delivery or service, the value of which is not subsequently at risk.

Factoring is a modern financial service that serves to finance sales. A factor buys receivables from a factoring customer's customers (debtor) from deliveries of goods and/or services within defined debtor limits. In return for the assignment of the receivables, the factor makes payments to the factoring customer immediately, which are based on the amount of the receivables. Factoring essentially has three functions: Liquidity, del credere protection and services.

Factoring agreement
In the factoring agreement, rights and obligations are specified in a framework agreement between the factor and factoring customers. Core areas are the obligation to offer receivables, the factor's obligation to purchase within the agreed del credere limits and the factoring customer's liability for the legal existence of the receivable (liability for default).

Factoring client
Sellers of receivables/Cedants

Factoring fee
The factoring fee regularly includes the price for the assumption of default risk and accounts receivable management by the factor. The amount depends on the respective risk on the debtor and factoring customer side as well as the work involved and therefore fluctuates (factoring costs).

Factoring industries
Industrial, wholesale and service companies from more than 30 sectors have been using the advantages of factoring for decades. Factoring customers increasingly include companies that carry out international factoring. The main factoring sectors include (in alphabetical order): electrical engineering and precision engineering, vehicle manufacturing, distributive trades, wholesale and retail trade, manufacture of chemical products, manufacture of fabricated metal products, manufacture of furniture and jewellery, mechanical engineering, metal production and processing, food, pulp and paper, publishing and printing, other manufacturing, textiles and clothing. Factoring of medical receivables and receivables from the construction sector has also gained in importance in recent years.

Factoring ratio
The factoring ratio measures the ratio between the purchased receivables volume of the German factoring institutes and the gross domestic product. The factoring ratio in Germany was 6.5 percent in 2014. Compared to other countries such as Italy, Great Britain and France, however, there is still considerable growth potential.

Failure protection
The factor regularly assumes one hundred percent default risk without recourse.

Federal Financial Supervisory Authority (BaFin)
The Federal Financial Supervisory Authority supervises and controls all areas of financial supervision in Germany, including credit institutions and financial services institutions, which also include factoring companies.

Finance charges
The financing costs in factoring mean the interest charge for the period from the time the capital is made available until the payment of the debtor is received or until a contractually agreed point in time (del credere case); see also Factoring costs.

Financing function
Factoring enables the capital tied up in receivables to be released and thus expands the cash flow of the factoring customer available for developing the core business (liquidity).

The term forfaiting refers to the medium- and long-term purchase of (individual) receivables without recourse against the seller in the event of default. The latter is liable for the existence of the receivables sold (liability for loss). The seller of the claim is called "forfaitist", the buyer "forfaiter".


Function of factoring
Factoring as a modern form of financing has various functions. The three most important are: 1.) Financing, 2.) Allowance for bad debts, 3.) Service for the customer.

Funding framework
The financing framework is the sum that is made available to the factoring customer in compliance with the factoring agreement.

Growth finance
Factoring is a form of financing with matching turnover, i.e. with increasing turnover and growth within the limits, the volume of receivables to be purchased can also increase. Factoring thus finances company growth.

Import factoring is a special form of international factoring in which a domestic factor buys or collects receivables of a foreign factor from domestic debtors. This can be done either with or without assumption of the del credere risk.

With this factoring variant, the factoring customer uses the liquidity immediately available and the del credere protection of factoring, but waives any further services provided by the factor. With this factoring variant, the factoring customer manages accounts receivable accounting and accounts receivable management in trust for the factor (bulk factoring) until further notice.

International factoring
International factoring means factoring for receivables from cross-border transactions and is referred to as export or import factoring, depending on the location of the factoring customer. Business is conducted either directly or through a factoring partner for international cooperation in the respective countries. 

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Liability for loss
The seller of the claim, i.e. the factoring customer, is liable to the factor for the legal existence of the claim, i.e. for the fact that the sold claim actually exists.

Maturity factoring
Maturity factoring is a factoring variant in which the factoring customer benefits from the advantages of complete protection against the default risk and relief in accounts receivable management, but waives immediate settlement of the purchase price by the factor.

Non-assignment clause
In principle, claims are transferable by way of assignment. However, this can be excluded by agreement between the creditor and the debtor. In Germany, however, an assignment is generally effective in factoring due to the provision in § 354a HGB if the legal transaction is a commercial transaction for both parties.

Note of assignment
The factoring customer delivers his goods or services to his debtors and creates invoices for them, which regularly contain a notification of the assignment of the claim in favour of the factor and oblige the debtor to pay to the account specified by the factor. An exception is made in silent factoring.

Number of receivables
Factoring customers sell their receivables from their debtors to factoring institutions. Since these cannot know the underlying business between the parties and to the demands more exactly, Factoring customers take over regularly the adhesion for the Verität, thus for the legal existence of the demand and have to vouch to the factor for the fact that the sold demands actually exist and no or only known deficiency pleas against the demands can be asserted. This liability must be strictly separated from the liability for the creditworthiness of the customer.

Offer obligation
In the factoring contract, the factoring customer undertakes vis-à-vis the factor to offer for purchase all future claims arising from delivery and performance against debtors, or even only certain parts thereof (partial factoring).

One-factor system
In contrast to the two-factor system, the factor here handles export factoring without foreign factoring partners in the respective countries. As a rule, debtor limits are granted on the basis of credit insurance from the factor. Receivables from foreign receivables are collected directly.

Open factoring
In this form of factoring, which is predominant in Germany, the debtors are informed by the factoring customer about the cooperation with the factor. See, on the other hand, silent factoring.

Open item list
The open item list ("open item list") provides an overview of invoices issued but not yet paid by a company. It lists the due dates for each individual invoice. The factor uses the surgery list of a factoring customer as an information and control instrument.

Outstanding receivables
From a business point of view, receivables, that are not yet due, are "dead capital" that can be converted into liquidity with the aid of factoring, i.e. the sale of receivables.

A claim is a legal claim under the law of obligations. In the balance sheet of an enterprise, these are the outstanding funds from open deliveries of goods and/or the provision of services.

Priority principle
Receivables are acquired by assignment. In the event of multiple assignments according to the principle of civil law priority, the subordinate assignment of the previous assignment is invalid. In this case, the subsequent purchaser cannot acquire any right to the claim.

As part of the factoring agreement, the purchase of receivables of a factoring customer against his debtors is regularly regulated.

Purchase price retention
As a rule, the factor initially deducts 10 % to 20 % of the purchase price of the receivables. This amount covers any deficiencies raised by customers, set-offs, bonuses, discounts, rebates and the like. The amount initially retained is paid out to the customer immediately after payment by the customer or at the latest in the event of default case.

Purchasing price
In return for the purchase of the receivable, the factor immediately pays the purchase price for the receivables to the factoring customer. This purchase price corresponds to the gross invoice amount of the purchased receivable less discounts, bonuses, rebates or other deductions claimed by the customer as well as a discount for the individually agreed services of the factor (accounts receivable management, del credere assumption) and for the financing of the receivables.

Agencies and/or credit institutions prepare individual analyses of the creditworthiness of companies before granting a loan, which should reflect the probability of default of the analyzed company and which are taken into account when assessing the creditworthiness of the factoring customer.

Real factoring
In real factoring, the factor buys receivables without recourse (i.e. without the possibility of recourse to the factoring customer) within the limits granted to debtors; in contrast to non-genuine factoring.

Recourse factoring
In the case of so-called fake factoring, in contrast to real factoring, the factor can fall back on the factoring customer in the event of non-payment by the customer.

Retention of title, extended
In the event of delivery of goods, suppliers regularly reserve title to the goods delivered by them until the complete purchase price has been paid. The delivered party may resell the goods in the ordinary course of business, provided that he assigns in advance to the supplier the payment claim against third parties arising from the resale of the goods.

Reverse factoring
Reverse factoring means "reverse" factoring and, in contrast to classic factoring, aims at the purchasing side of a company. The initiator of this factoring procedure is not the vendor, but the recipient of goods or services, that is, the customer.

Security deposit
The security retention serves the factor as compensation for possible agreed rebates, discounts or possible objections due to defects with regard to the assigned claims. In most cases, the security retention amounts to between 10 and 20 percent of the purchased receivables and is offset when due or paid out to the factoring customer.

Service through factoring is one of the three central functions of factoring. This can consist of various services and often includes receivables management, dunning and debt collection for factoring customers. As an option, an ongoing review of the creditworthiness of the debtors can also be agreed. By taking over services by the factor, the factoring customer can save costs and use his resources elsewhere.

Service of the Factor

Defects are defined as defects in a delivered product or service. Defects may entitle the debtor not to have to fulfil all or part of the invoice issued to him by the factoring customer. Justified defects therefore also have an influence on the relationship between the factor and the factoring customer.

Silent factoring
In silent factoring, customers are not informed about the sale of receivables from the factoring customer to the factor.

Silo principle
Factoring is the revolving purchase of receivables of a factoring customer against its customers within the scope of granted debtor limits. If a limit drawn on a customer has been exhausted, further receivables against this customer cannot be repurchased until part of the receivables purchased has been settled. The newly tendered receivables will then move into the freed-up financial framework as if in a silo.

Standard factoring
In addition to the financing of purchased receivables with matching sales, standard factoring also covers the risk of the factoring customer's default (del credere risk) as well as a relief in accounts receivable management, which is taken over by the factor in this factoring variant.

Supplier's credit
Sales policy instrument whereby the supplier grants his customers an extended payment term. This leads to a liquidity commitment, which must be financed by equity or bank loans. Through the sale of receivables as part of factoring, the cash flow generated is finally available to the company at an early stage (liquidity).

Assignment means the transfer of a claim from an assigning creditor (assignor) to a new creditor or assignee (assignee). In factoring, receivables are regularly assigned in the factoring agreement between the factoring customer and the factor.

Terms and conditions
General Terms and Conditions (GTC) are pre-formulated contractual conditions for a large number of contracts, which one contracting party (user) provides to the other contracting party upon conclusion of a contract. General terms and conditions are the basis of a factoring contract concluded between a factoring customer and a factor.

In the two-factor system, a domestic factor uses a correspondent company of a factor to process the transaction abroad (see one-factor system).

Variants of factoring
B2B-Factoring, B2C-Factoring, Bulk-Factoring, Confidential-Factoring, Cross-border-Factoring, Real-Factoring, Export-Factoring, Maturity-Factoring, Full-Service-Factoring, Import-Factoring, Inhouse-Factoring, Open-Factoring, Reverse-Factoring, Standard-Factoring, Silent-Factoring, Recourse Factoring.


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