Chapter 16
management by the firm of the time that elapses between its purchase of raw materials and its mailing payment to the supplier
accounts payable management
liabilities for services received for which payment has yet to be made
accruals
the requirement that for a certain number of days during the year borrowers under a line of credit carry a zero loan balance
annual cleanup
lending institutions that make only secured loans-both short-term and long-term - to businesses
commercial finance companies
form of financing consisting of short-term , unsecured promissory notes issued by firms with a high credit standing
commercial paper
often applies to the average unused portion of the borrower's credit line
commitment fee
the fee that is normally charged on a revolving credit agreement
commitment fee
a required checking account balance equal to a certain percentage of the amount borrowed from a bank under a line-of-credit or revolving credit agreement
compensating balance
the implied rate of interest paid to delay payment of an account payable for an additional number of days
cost of giving up a cash discount
loan on which interest is paid in advance by being deducted from the amount borrowed
discount loan
financial institution that specializes in purchasing accounts receivable from businesses
factor
the outright sale of accounts receivable at a discount to a factor or other financial institution
factoring accounts receivable
a loan with a rate of interest that is determined at a set increment above the prime rate and remains unvarying until maturity
fixed-rate loan
secured short-term loan against inventory under which the lender's claim is on the borrower's inventory in general
floating inventory lien
a loan with a rate of interest initially set at an increment above the prime rate and allowed to float, or vary, above prime as the prime rate varies until maturity
floating-rate loan
letter written by a company's bank to the company's foreign supplier, stating that the bank guarantees payment of an invoiced amount if all the underlying agreements are met
letter of credit
a publicly disclosed legal claim on loan collateral
lien
agreement between a commercial bank and a business specifying the amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time
line of credit
the basis on which a borrower, having pledged an account receivable, continues to collect the account payments without notifying the account customer
nonnotification basis
the basis on which accounts receivable are sold to a factor with the understanding that the factor accepts all credit risks on the purchased accounts
nonrecourse basis
contractual restrictions that a bank may impose on a firm's financial condition or operations as part of a line-of-credit agreement
operating -change restrictions
the percentage of the book value of the collateral that constitutes the principal of a secured loan
percentage advance
the use of a firm's accounts receivable as security, or collateral, to obtain a short-term loan
pledge of accounts receivable
the lowest rate of interest charged by leading banks on business loans to their most important business borrowers
prime rate of interest (prime rate)
line of credit guaranteed to a borrower by a commercial bank regardless of the scarcity of money
revolving credit agreement
short-term financing (loan) that has specific assets pledged as collateral
secured short-term financing
the agreement between the borrower and the lender that specifies the collateral held against a secured loan
security agreement
unsecured short-term loan in which the use to which the borrowed money is put provides the mechanism through which the loan is repaid
short-term, self I liquidating loan
short-term, one-time loan made to a borrower who needs funds for a specific purpose for a short period
single-payment note
financing that arises from the normal course of business
spontaneous liabilities
paying bills as late as possible without damaging the firm's credit rating
stretching accounts payable
a secured short-term loan against inventory under which the lender advances 80 to 100 percent of the cost of the borrower's relatively expensive inventory items in exchange for the borrower's promise to repay the lender, with accrued interest, immediately after the sale of each item of collateral
trust receipt inventory loan
short-term financing obtained without pledging specific assets as collateral
unsecured short-term financing
secured short-term loan against inventory under which the lender receives control of the pledged inventory collateral, which is stored by a designated warehousing company on the lender's behalf
warehouse receipt loan