Glossary
Essential terms in factoring, credit and financing
30+ terms explained simply, without jargon, for CFOs and owner-managers who want to quickly understand the language of financing. Bilingual RO/EN.
Factoring
- § Assignment notice
- Official written communication to debtor announcing that collection rights have been transferred to the factor. Mandatory for assignment to be enforceable.
- § Factoring
- A financing technique where a company sells its commercial invoices (with future payment terms) to a factor (financial institution), receiving an immediate advance (80-90%) and the difference once the debtor pays.
- § Factoring advance
- Amount paid immediately by factor to assignor after invoice assignment, typically 80-90% of invoice value. The difference is paid after collection from debtor.
- § Factoring commission
- Fixed fee paid to the factor for each assigned invoice, typically 1-2% of invoice value. Covers processing, debtor verification, and collection management costs.
- § Factoring limit
- Maximum financing amount approved for an assignor, calculated based on assignor and debtor risk profiles. Renews as old invoices are collected.
- § Non-recourse factoring
- Type of factoring where the factor fully assumes debtor default risk. If debtor becomes insolvent, the loss is the factor's. Higher cost.
- § Receivable assignment
- Transfer of collection rights from an original creditor (assignor) to a new creditor (assignee). Governed by Romanian Civil Code, art. 1566-1592.
- § Recourse factoring
- Type of factoring where, if the debtor fails to pay at maturity, risk reverts to the assignor (the company that sold the invoice). Lower cost than non-recourse factoring.
Loans
- § Fixed rate
- Interest rate that remains constant throughout the loan term, regardless of market rate evolution. Typically higher than variable rate at origination.
- § Fixed term
- Exact loan period, without prepayment option. Ensures cash-flow predictability for the creditor.
- § LTV (Loan to Value)
- Ratio between loan amount and collateral value. Typically 60-70% for residential real estate, 50-60% for commercial property, 50% for equipment.
- § Mortgage
- Real right over a property allowing the lender to enforce sale in case of default. Governed by Civil Code and Law 287/2009.
- § Pledge
- Real movable collateral (over equipment, inventory, vehicles) registered with the Electronic Archive for Movable Collateral (AEGRM).
- § Secured loan
- Loan granted by a financial institution to a company, providing for real (real estate, equipment, inventory) or personal collateral in case of default.
- § Subordination
- Status of a debt that, in case of debtor insolvency, is paid only after senior debts (bank) are fully covered. Higher risk for creditor, higher return.
- § Variable rate
- Interest rate that changes periodically over the loan term based on a reference index (ROBOR, IRCC, BNR monetary policy rate) plus a fixed margin.
General finance
- § Operating cash-flow
- Cash generated by company's operations (sales receipts minus payments to suppliers, employees, taxes). More relevant financial health indicator than accounting profit.
- § ROA (Return on Assets)
- Net profit / total assets. Measures operational efficiency in using assets to generate profit.
- § ROE (Return on Equity)
- Net profit / equity. Indicates how efficiently the company generates profit from shareholder capital.
- § Working capital
- Difference between current assets (inventory, receivables, cash) and short-term liabilities (suppliers, payroll, taxes). Capital available to finance daily operations.
Regulation
- § AML/KYC
- Anti-Money Laundering / Know Your Customer — mandatory client identification and transaction monitoring procedures to prevent money laundering and terrorism financing.
- § BNR
- National Bank of Romania — central bank, prudential supervisory authority for banking and non-banking financial institutions.
- § GDPR
- EU Regulation 2016/679 on personal data protection. Applicable to any company processing data of individuals from the EU.
- § General solvency
- Prudential indicator calculated as own funds / risk-weighted assets. Minimum threshold for NBFIs in Romania is 8%. ECF holds 56.6%.
- § NBFI
- Non-Banking Financial Institution — entity regulated by BNR under Law 93/2009, authorized to perform lending, factoring, leasing without being a bank.
Investors
- § Due diligence
- In-depth verification process of a company before investment — financial, legal, operational, commercial. Mandatory for large subscriptions.
- § Information memorandum
- Comprehensive document describing a financing offer: company, business model, financial statements, offer terms. Confidential, distributed under NDA.
- § Maturity
- Fixed duration of an investment, after which the principal is repaid. At ECF: 3 years or 5 years.
- § Minimum subscription threshold
- Minimum amount an investor can place in an offer. At ECF: EUR 500,000 RON equivalent.
- § Subscription
- The act by which an investor commits to fund a company with a specific amount under the terms of an offer.
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