Business Finance Services - Glossary

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Financial Services Glossary

The 'language of finance' can be daunting. We therefore thought that a simple explanation of many of the terms might be helpful, so here goes!


Glossary Index

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AllAccounting TermsBanking Terms


Accounting bases
The (sometimes alternative) methods that have been developed for applying basic accounting concepts to business transactions and for measuring certain items in the accounts, e.g. various methods for calculating depreciation of fixed assets.

Accrued income
Income earned but not yet received

Accrued Interest
Interest due but not yet paid.

Acid Test
The ratio between current assets (Less inventory) and current liabilities as shown on the balance sheet. This test gives some indication of a entity's liquidity.

Affidavit

Agreement

APR

Asset
Any property or rights owned by a company that have monetary value.

Balance Sheet
The balance sheet is a key indicator of a company's strength

Bank Draft
A cheque raised by a Bank, issued on a current account and addressed to a specific nominee. This acts as a guaranteed payment.

Bankruptcy
The financial condition of insolvency, particularly when such insolvency has resulted in the filing of a petition for reorganisation or liquidation.

Book Value
Value of an asset according to the official accounts. This may or may not be accurate.

Business Angel
A private individual who is prepared to invest in one or more companies which are seeking a capital injection. In return the investor may seek an equity share in the business although in some cases the investment may take the form of a business loan with security offered in the form of a debenture over the company's assets.

Capital Allowance
An allowance against profits given for tax purposes in respect of expenditure on fixed assets.

Capital Employed
The amount of long-term funds invested in or lent to a business and used by it to carry out its operations.

Cash Basis
A method of accounting that shows expenses and income only when actually paid or received.

Cash Flow
Income inflows and expenditure outgoins over a specific period of time.

Cash Flow
A calculation of the amount of liquid funds that will be available to a company for the performance of its transactions, normally looking to the future.

Commercial Lease
A lease in which the Lessee has entered into the lease transaction for business or commercial purposes (also referred to as a business lease).

Commercial Mortgages
Intro to Commercial Mortgages

Compound interest
Interest calculated on the sum of the principle plus accrued interest due at the date of calculation.

Consideration

Contingent Liability

Contract

Covenant
A promise to do something or that certain facts are true.

Debtor days
How long your customers typically take to pay you

Factoring
A financial service which allows a company to sell or transfer title  to its accounts receivable (invoices) to a Factoring company at a discounted rate. The Factoring company then becomes the principle rather than an agent. Because of this the Factor does not have any recourse to the seller should the customer default on payment (except in the case where the terms of the contract of sale are not fulfilled).

Invoice Discounting
A financial transaction that allows a company to draw down funds against its sales invoices before the customers have actually paid. This is acheived by the company borrowing a percentage (usually 75 - 80%) of its whole sales ledger from a finance company. Invoice discounting services are available in a variety of forms, but in most cases the finance company will have recourse to the seller if the customer does not pay within a specified period.

Lease-back
Lease-back is a .......

Working Capital
The amount of liquid funds available to a business at any specific time to carry out its operations.