The Finance and Banking Industry Has Been Around for Hundreds of Years and Has its Own Language Which is Often Confusing and Unnecessarily Complicated for Customers. 

This document should only be used for basic guidance and should not be relied as evidence in legal disputes. If the reader requires more detailed knowledge, contact us on 01937 588084
Bank Overdraft – is a credit limit granted by the Bank for an account. Interest is charged on the “overdrawn” balance, and security maybe required. Arrangement and Security Fees apply. Overdrafts are repayable on demand and penalty interest charged if the limit is exceeded. 
Bank Base Rate - all banks publish their base rate on a daily basis, it is a benchmark rate that is used by the bank .Borrowing from a bank can either be fixed rate (see below) or variable rate, the latter is usually expressed as a rate above base rate e.g. 3% over base. 
Confidential Factoring - Factoring arrangement (see Factoring) which is not disclosed the customers debtors. 
Confidential Invoice Discounting – Invoice Discounting arrangement ( see Invoice Discounting) which is not disclosed to the customers debtors. 
Consumer Credit Act – Introduced in the 1970’s and reformed several times since, to protect consumers who lacked business experience and knowledge against unfair or onerous financial arrangements. Some businesses are classified as Consumers, Sole traders or partnerships with less than 3 partners. 
Contract Hire - is a fixed term hire or rental agreement, for vehicles ,full maintenance can be included as an optional extra. A very convenient way to control your motoring costs and run a new car. The lease company takes the risk on the future value of the vehicle . VAT is chargeable on the rentals. 
Contract Purchase – is a fixed term finance agreement,.Which minimizes the monthly payments by including an Optional Final Payment or Guaranteed Future Value based on the annual mileage and term of the agreement .. Popular with Non VAT registered companies. 
Duty of Care – All businesses including sole traders and partnerships have a legal obligation tp ensure vehicles used on company business are roadworthy , properly insured and the drivers have the correct license. The duty of care extends to employee owned vehicles and records of checks have to be maintained. Fleet Managers, Directors and principals of businesses are liable for financial penalties and custodial sentence. 
Factoring – A businesses outstanding trade invoices can be discounted and cash generated, funders advance up to 85% of the outstanding invoice value and operate the sales ledger and collection services, a very popular form of cashflow financing used by businesses of all sizes who supply goods and services to other businesses on invoice terms. Online systems are extensively used to give 24/7 service. 
Financial Conduct Authority – (FCA) regulates the financial service Industry in the UK.It enforces the Consumer Credit Act and ensures Finance providers treat their customers fairly. 
Finance House Base Rate – (FHBR) is widely used in the UK as a “Base Rate” for variable rate finance agreements. Set on the last Friday of each month by the Finance and Leasing Association who are the UK Trade Association for the Asset and Vehicle Finance Industry. 
Fixed Rate – or Flat Interest rate is exactly what it says, the rate is fixed at an agreed figure for a fixed term usually the life of the agreement in the case of Hire Purchase and Lease agreements. 
Finance or Funding Lease - Financing arrangement for new and used equipment and vehicless including existing assets owned by your business, VAT is charged on the rentals at the standard rate. Tax based leasing is popular with non taxpaying businesses such as , Charities, Companies who have fully utilized their Annual Investment Allowances . See Sale and Leaseback. 
Hire Purchase - Financing arrangement for new and used goods that usually does not require any additional security. At the end of the agreement the goods become the property of the hirer. 
Hirer – Industry speak for customer. 
Invoice Discounting - In simple terms Invoice Discounting is Factoring with the Sales ledger and collection remaining with the customer, usually Invoice Discounting facilities have much higher limits and are used by businesses with turnover £1M and over. 
Invoice Finance – The generic term for Factoring and Invoice Discounting. 
Lease Purchase - See Hire Purchase. 
Lessee – Industry speak for Customer. 
Lessor - Industry speak for Lender. 
LIBOR – London Interbank Offered Rate to give its full title is a base rate used in Finance Agreements, set each day , LIBOR rates are set for 7 time peiods (maturities) from 1 day to 1 year. 
Minimum Term Rental Agreement – Usually found in the small ticked leasing market, the hirer agrees to make rental payments for a minimum period, after which they can give notice they want to terminate the lease and return the goods to the Lessor. 
Non-recourse Factoring - If your customer fails to pay the invoice, the factor will pay you. You pay an additional charge to cover the credit insurance costs. 
Operating Lease - Off balance sheet financing of New or Used assets, including existing assets owned by your business, removes the risk of future fall in the value of the assets, similar to a long term hire agreement. 
Personal Contract Hire – Contract Hire (See above) for Personal Customers. 
Personal Contract Purchase - Contract Purchase (See above) for Personal Customers. 
Refinancing – Business customers can raise funds by refinancing equipment and or vehicles they own using Hire Purchase or Lease Finance products. 
Recourse Factoring - If your customer fails to pay the invoice, the factor will look to you for reimbursement of any amounts advanced against the invoice. The service excludes bad debt protection. 
Secondary Period – Most Finance Leases have a Secondary Period, during which the Lessee continues to lease the goods on the same terms and conditions but at a reduced rental, often referred to as a Peppercorn or very low amount each year. 
Security – Borrowing may require additional security; this might be a guarantee and indemnity or charge over property or other assets. In the case of Limited Companies a Debenture is sometimes taken which gives the Bank control of all the companies’ assets at the power to appoint representatives to manage the company if required. 
Stop Gap Vehicle Rental - Business only product, which is the short term rental of motor vehicles for a period of 30-120 days, typically used by key staff who are on short term contracts, or where replacement vehicles are delayed in delivery. A cost effective option to businesses who do not want a long term contract , but need to access a pool of vehicles from time to time. 
Variable Rate – is used Non Regulated Hire Purchase and Finance Lease Agreements for businesses only. The repayments or rentals are set based on a margin above a base rate, Bank Base Rate, Finance House Base Rate or LIBOR. At set dates the repayments or rentals are adjusted to reflect the change in the chosen base rate. There are minimum base rates included in the terms and conditions usually no upper limit on what base rate can rise .In times of historically low interest rates Variable rate lending is less popular than Fixed Rate. 
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