| Administration Charge |
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A charge by the factor on each invoice for the provision of the service.
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| Advance Billing |
An invoice raised in advance of the provision of the service to which it relates.
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| Aged Debtors Ledger |
A listing of outstanding balances per customer and split by either the month in which the
respective invoices where raised or the dates they become due.
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| Agency Discounting |
Also referred to as disclosed invoice discounting. Where customers are aware of the factors
involvement, but the company maintain the responsibility of managing their sales ledger.
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Approved Debtor / Balance
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A customer approved by the factor for the advance of the agreed prepayment.
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| Asset Backed Lending |
Lending by an institution where specific security is provided i.e. invoice finance, asset finance
(HP and leasing), stock finance. Opposed to lending under a blanket charge or debenture.
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| Assignment |
The transfer of rights and benefit.
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| Associated Company |
To a factor these include; Parent Companies, Subsidiary Companies, Companies with Common
Shareholders, Companies with Common Directors, Franchisees.
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| Audit |
An audit of the company's systems and debtors will be completed by the factor (usually every three
months). Ensuring continuing satisfaction with their security position.
May also be terminology as per 'survey'. i.e. initial survey of systems and debt prior to the factor
making a formal offer of facility.
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| Availability |
The amount remaining available to draw from the invoice finance facility, considering advances may
already have been made.
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BACS Payment
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Bank Automated Clearing System. A payment made or received through this system. Payments will
generally take c.3 days to reach the recipient.
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| Bad Debt |
An outstanding debt that will not be paid, most often given the cessation of the company invoiced.
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| Ban on Assignment (BOA) |
A clause within a supplier's terms of trade that specifically bans the assignment of the benefits
or proceeds of the sale or contract.
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| Base Rate |
Base funding percentage above which an additional margin is added by the respective lender. All
UK clearing banks currently operate with the same base rate determined by the Bank of England.
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| Brumark Ruling |
A ruling made by the UK Law Lords sitting on the Privy Council in New Zealand stating that
institutions holding a fixed and floating charge (or debenture) over a company's assets as security
could at best expect the floating charge to apply to trade debtors.
Previously it had been assumed the lender held a fixed charge over book debts under a debenture.
Under a floating charge preferential creditors rank above the lender (opposite with a fixed charge) in
a claim on the company's assets. The lender's security position in respect of debtors therefore being
significantly eroded.
Whilst ruled on in New Zealand it is thought that given the Privy Council consists of UK Law Lords
that if challenged in the UK the same outcome would apply.
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CIS Certificate
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Contractors within the construction industry are required by the Inland Revenue to deduct tax when
paying sub-contractors. Only if the sub-contractor has the necessary CIS certification can the
deduction be avoided.
This is therefore of relevance to a factor, if invoices they have financed are liable to deduction by
the customer (contractor). The factor's security being eroded. Very simply:
* CIS 5 certificate permits gross payment by the customer
* CIS 6 certificate permits payment gross to the company, but not to a third party, such as a factor.
* CIS 4 requires deductions of tax to be made by the customer.
If the nature of the company's business is subject to construction industry taxation then the
particular certificate held will determine which factors are willing to be of assistance.
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| Client |
A company making use of a factor's service.
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| Collectability |
The ease of collecting in the full value of outstanding trade debts in the hypothetical situation
that the company has ceased to trade. Affected by such issues as proof of delivery, disputes,
contractual obligations etc.
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| Companies Act 1985 |
This Act contains a variety of business legislation. Section 151 is of particular relevance to
a number of instances involving invoice finance. Increasingly invoice finance is used to effect
management buy outs/ins, acquisitions and other share purchases. The Act prohibits the provision of
financial assistance to a person by a company for the acquisition of its own shares. This then
includes the raising of cash resources by using the debtor assets of the company. The Act does go on
though to set out, in section 155 to 158, conditions by which this is permitted. This is permissible
by convention known as the 'whitewash procedure'. Reference should be made to your solicitor in this
respect.
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| Concentration |
Used in reference to the spread of customers by balances outstanding. Some factors will apply a
concentration limit, whereby should a single debtor exceed an agreed percentage of the total gross
sales ledger at any one time then the amount above this limit would become 'unapproved'.
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| Confidential Factoring |
An alternative expression for confidential invoice discounting. Some factors are considering the
provision of a true confidential factoring facility. That is, whereby the factor will complete the
credit control responsibilities, albeit as if they were the company.
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| Confidential Invoice Discounting |
An invoice finance facility where the factors involvement is not disclosed and therefore remains
confidential from the company's customers. Also the credit management of the company remains its own
responsibility.
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| Consignment Stock |
Goods provided to a customer for which payment is required only once they have been sold on.
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| Constructive Delivery |
Goods held for a customer that have already been invoiced but have not been delivered but stored
on their behalf.
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| Contra Account |
A customer that is also a supplier to the company.
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| Contractual Sales |
Sales made within an over-riding supply agreement with the customer.
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| Control Account Summary |
A monthly reconciliation of sales, credit note, receipts, adjustments completed by invoice
discounting clients for the factor to check against their records.
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| Correspondent Factor |
An overseas factor that is prepared to work with a UK factor to assist with the collection of
export debts. The reverse can also be true, that is a UK factor being the correspondent factor.
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CPE - Credit Protection Element
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The proportion of the administration charge applied to cover the provision of bad debt protection.
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Current Account (Invoice Finance)
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An account maintained by the factor in the name of the client for the recording of all
transactions between the factor and the client.
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Debenture
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A 'blanket' charge over all business assets. Registered at Companies House.
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| Debtor Credit Limit |
Individual customers may be given a credit limit by the factor above which balances will become
unapproved.
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| Dilution |
At any given time a debtor book against which the factor is advancing against will contain an
element of debt that is likely to be subject to credit notes, discount rebate or adjustments. The
factor will wish to establish this as part of agreeing the prepayment percentage advance against the
debtor ledger.
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| Direct Delivery |
Deliveries of goods direct from supplier to customer in which the company does not handle the
goods.
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| Directors Warranty |
Director's indemnity giving liability in the event of the company breaching specific clauses
within the invoice finance agreement. These usually relate to the fraudulent notification of debt.
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| Disclosed Invoice Discounting |
An invoice finance facility that is disclosed to the customers of the company by way of a note on
the company's invoices. Unlike factoring the credit management remains the responsibility of the
company.
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Discount Charge
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Interest charge.
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Discretionary Debtor Credit Limit
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A minimum credit limit applied to all customers irrespective any individual credit search
information.
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| Dispute |
A balance or invoice not accepted by the customer.
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| Doubtful Debt |
A debt that has become doubtful that settlement will be made, given dispute or the viability of
the customer.
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| Drawdown |
A request to the factor to transfer available funds from the invoice finance account to the
company's trading bank account.
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Dun & Bradstreet (D&B)
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Credit reference agency.
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| Dunning Cycle |
This is industry terminology for the process and timescale of reminder letters, phone calls etc
used by the factor in the collection of outstanding invoices.
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Export
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The sale of goods or services whereby the customer company invoiced is outside the UK. Note this
may still be relevant if UK to UK supply but invoiced to an overseas registered company.
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| Export Factor |
As correspondent factor. See above.
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| Factor |
A supplier of factoring or invoice discounting.
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| Factoring |
An invoice finance facility including the provision of a credit management service by the factor
on behalf of the company. A factor's involvement is disclosed to the customer.
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Factors & Discounters Association
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A members association acting on behalf of factors to promote their interests and the use of
invoice finance.
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| Financial Assistance |
This expression is most often used with regard to company assistance to a person in acquiring its
own shares. The Companies Act 1985 lays down strict guidelines under which this may be permitted.
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| Fixed Charge |
A specific charge against a named asset (i.e. debtors). Registered at Companies House.
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| Fixed Fee |
Occasionally a factor will proved a fixed monthly / annual administration charge, as opposed to a
percentage fee.
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| Free Issue Material |
Any material which is supplied by the customer to the company free of charge i.e. it will not
feature in the trade creditors ledger.
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| Funding Limit |
A 'review' limit may be applied to an invoice finance facility. It may therefore be possible that
this is lower than the total availability generated based on the company's outstanding debtors ledger
and agreed prepayment percentage. Often arises where sales grow faster than anticipated. Formal
approval by the factor should see this review limit increased.
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| Gross Turnover |
Sales including VAT.
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| Ineligible Balance |
A proportion of the sales ledger against which the factor will not provide finance against. See
also Unapproved Debt.
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| Invoice Batch |
The notification to the factor of a number of invoices.
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| Invoice Finance |
The general term for either factoring or invoice discounting. A flexible and revolving finance
facility, providing cash for working capital and other business uses by utilising a company's
outstanding, unpaid customer invoices as security for the lender.
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| Loan Subordination / Postponement |
The agreement by directors or associated businesses of the company not to withdraw loan money
invested in the company unless agreed to by the factor. The subordination of loans can often give the
factor comfort to assume these as 'quasi' capital.
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Maturity Factoring
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Rarely offered invoice finance facility these days. Provided on non recourse terms whereby
settlement of each invoice is made by the factor on a given date from the invoice date, irrespective
of whether the customer has paid. If the customer has paid the factor, the receipt will still not be
passed to the company until the given maturity date. The benefit includes guaranteed forecasting of
cash flow.
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| Maximum Extension Period |
Period beyond the invoiced terms of trade at which, under a non recourse (insured) facility, the
factor will settle the outstanding customer invoice. Note, not relevant where a customer dispute
exists. Not all factors non recourse terms allow for this 'protracted default' cover.
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| Minimum Administration Charge |
A minimum charge applied to the administration charge assessed annually. Should the percentage
administration charge applied to gross turnover result in the payment of charges below the minimum
charge then the company will be required to pay the difference.
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| Minimum Period |
The minimum period of an invoice finance agreement. Usually 12 months. Termination of the
agreement by the company before the minimum period expires will result in the factor applying an early
termination penalty charge.
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| Net Worth |
The net asset position of the company. Total company assets less total company liabilities.
Capital account in the case of sole traders and partnerships.
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| Non Recourse |
Without recourse to the company. An invoice finance facility provided where the company's debtors
are insured by the factor. Debts are therefore at the factor's risk, within agreed credit limits,
once notified to them. Company risk remains in the event of a customer dispute.
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| Notification |
The advice of new sales invoices / values to the factor to update the sales ledger and
availability.
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Offer
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An offer of facility by the factor to the company. Care in that some offers can still be subject
to certain conditions such as a satisfactory survey, credit approval and are therefore little more
than an indication of facility. The majority though are formal offers.
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| Open Item Sale Ledger |
The accounting for of sales by which all outstandings, invoices and credit notes are detailed, as
opposed to balances only.
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| Overpayment |
The agreed payment by the factor to the company of funds, although above the funding limit or
agreed prepayment percentage.
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| Preferential Creditor |
Crown creditors. HMC&E (VAT) and Inland Revenue (PAYE)
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| Prepayment |
Percentage advance of finance against the value of outstanding debtors.
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| Prime Debtor |
Company's largest debtor by value of the total balance outstanding. As per concentration.
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| Proof of Delivery (POD) |
An important document for the factor, let alone the company. Substantially assists
'collectability' (see above). Includes customer signed delivery note, carrier note, timesheet,
weighbridge ticket etc.
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| Protracted Default |
Some factors non recourse (insured) terms include for payment to the company of balances
outstanding having reached an agreed period (Maximum Extension Period) still unpaid. This may be in
the region of 120 - 180 days from the original due date for payment of the invoice. Does not include
for issues of customer dispute.
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| Real Time |
Referred to in relation to on-line linkage. Up-dates information immediately, opposed to an
overnight download of information.
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| Receivable |
Debtor balance. 'Receivables Finance' - US terminology for invoice finance.
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| Reconciliation |
Balancing of invoice discounting notifications. Provided monthly by the company to the factor.
See Control Account Summary
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| Recourse |
The right of a factor to return invoices should the debt prove to be a bad or doubtful debt. The
business risk is therefore that of the company.
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| Recourse Period |
The period that invoices are financed for before being recoursed back to the company. This is
typically 90 or 120 days. In practise this is held as a reserve against the current ledger rather
than a physical return of funds.
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| Re-factoring fee |
An additional charge applied by some factors, under a factoring facility to the value of invoices
recoursed (see above). This is usually those older than 90 or 120 days.
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| Retention of Title (ROT) |
A clause contained in terms and conditions of sale which reserves title to the goods until payment
is received. This may include the right to the proceeds of the sale of the goods.
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Retrospective Rebate
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A volume discount given to customers.
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| Scheduled Order |
An order received from a customer specifying delivery of various quantities over a given period.
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| Self Billing |
An invoice raised by a customer, for payment by the customer to their supplier.
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| Settlement Discount |
A rebate allowed against the gross value of an invoice for settlement within a given period.
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| Special Retention |
An amount of the sales ledger set aside for which the factor will not permit finance against.
Unlike an unapproved balance this does not relate to a specific sales ledger balance, but another
reason specified by the factor.
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| Stage Payment |
The payment for a particular order in stages. i.e. 30% on order, 60% on delivery 10% after 30
days.
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| Survey |
An audit is very often complete by the factor of the company's systems and debtors before
approving the provision and terms of an invoice finance facility. Usually completed at the premises
of the company.
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| Take on |
The commencement of the invoice finance facility.
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| Take on Balance |
The sales ledger balance at the commencement of the facility against which the factor will provide
finance.
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| Termination Period |
Period of notice required to be given by the company to the factor as notice of their intent to
cease their invoice finance agreement. Usually subject to an initial minimum period of the agreement.
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| Trade Creditor |
A supplier to the company with who balances are outstanding under credit payment terms for
settlement of outstanding invoices.
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| Trade Debtor |
A business customer of the company with who balances are outstanding under credit payment terms
for settlement of outstanding invoices.
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| Transfer Charge |
The charge made for drawing funds from your invoice finance facility to the company's trading
account.
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| Trust Account |
The invoice finance 'bank' account
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| Unapproved Debt |
Trade debt that is not approved for funding by the factor. i.e. the prepayment is not permitted
against this element of debt.
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| Unprocessed Balances |
The total value of any invoice notifications still waiting to be processed by the factor.
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| Value Date |
The date receipts are considered accepted by the factor for the purposes of calculating interest
charges.
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| Waiver of Book Debts |
A factor will require the agreement of any existing charge holder (i.e. company's bankers) to
waive their interest in respect of debtors.
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| White Wash |
This is the legal process required to satisfy the Companies Act 1985 to render permissible
assistance by a company to a person to acquire its shares. This includes the use of an invoice
finance facility by a company to raise funding for the purchases of it own shares.
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Work In Progress
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Work undertaken for a customer on an ongoing basis where invoices are raised for measured or
estimated work completed to date.
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