A

Acid Test: This is a term used to calculate the short term prospects of a company to meet its financial obligations. It is calculated by deducting stocks and working progress from current assets and then the figure is divided by current liabilities. This is also known as Quick ratio.

Administration Receiver: Appointed by a creditor who has power under a mortgage charge (Secured Creditor). The receiver’s appointment is to realise the value of the asset charged in favour of the creditors. A company can continue to trade whilst in receivership but all transactions must be approved by the appointed receiver who must be a registered insolvency practitioner

AER: This is the Annual Equivalent Rate and is used to show what you would earn in interest from monies in a saving account.

Agent: An expressly authorised person acting on behalf of another party, called the principal, who as a result of the agreement shall be legally bound by the acts of the agent.

APR: means Annual Percentage Rate and shows the amount of interest charged on a credit agreement, taking into account all charges made under the agreement.

Arrears: means missed payments on monies owed that are paid on a regular basis and accrue as more payments are missed

Assets: means anything you own that has a monetary value and are normally expressed as Fixed, current.

Associated Companies: Where 2 or more companies have a common association. The most common association is same directors.

Attachment of benefits: a method the court can use to repay your debt from any benefits you receive. The DWP can take money from your benefits and pay it to your creditors.

Attachment of earnings:  Following a court judgment the court can authorise  your employer to deduct money from your wages and pay it to your creditors.

Auditors report: This is a statement from the company’s accountants following an examination of the accounts and that they have been prepared correctly and provide a true  and fair view  of the trading situation.

Authorised Capital: This is the shareholders’ investment in a registered company normally a Plc or Ltd.

B

Bad Debt: This is money owed to an individual or company that is not recoverable and has to be written off.

Bad Debt Ratio: A calculation based on the total sales against the non recoverable bad debts shown as a percentage

Bailiffs: officials (often court appointed) who may remove goods from your property, sell the goods and put the money towards your debts, which you have failed to pay following a county court judgment against you.

Balance Sheet: A statement showing the assets and liabilities of a company as at a specific date normally once per year.

Balloon payment: Usually used for a HP or conditional sale agreement where you may be required to make one final sum payment, normally at the end of the term of the agreement.

Bank Reference: A request to a bank normally asking their opinion as to whether a company is able to meet a credit amount for a pending transaction.

Bankruptcy: A declaration by a court for a person unable to meet his/her commitments. Any assets would be realised by an appointed Receiver to pay to creditors.

Behaviour Scoring: This is a scoring system to monitor repayments on a loan account. It is also used for marketing and debt collection purposes

Beneficiary: A person who is going to receive assets or profits from a trust, an estate or an insurance policy, when the contract conditions are fulfilled.

Bill of Exchange: An unconditional order in writing addressed to the drawee from the drawer guaranteeing an immediate payment on demand or at a fixed or determined date a fixed sum of money.

Borrowing Ratio: Shows a total debt as a percentage of the shareholders funds. It is the extent to which the company relies on external finance.

Business Debt Collection: When instructions are given to a third party debt collection agency to recover outstanding money due from clients.

 

C

Cash: Available funds held at the company or in current bank accounts

Cash on Delivery: To make payment upon receipt of goods or services

CCA: Consumer Credit Association or Consumer Credit Act

Certificate of Incorporation: It is a document detailing the date a company was incorporated and the Company Registration Number.

Charging order: a unsecured creditor who has obtained a high court or county court judgment can apply for charging order to secure a claim usually registered against land or property. It is only enforceable when the property or land has been sold. It cannot be used to enforce the sale.

Company Number: This is the unique registration number given to a company upon incorporation

Conditional sale: a contractual agreement whereby the terms and conditions are adhered to before taking ownership of goods or services purchased.

Contents insurance: An insurance policy covering the repair or replacement of possessions if they are lost, stolen or damaged.

Contractual Interest: Late payment interest charged by the seller when agreed payments are missed or overdue. These should be stipulated in the seller’s terms and conditions.

Contractual payments: the payments you agreed to make on a regular basis or in accordance with the contract when the agreement is first signed.

County court claim: a legal process creditors use to collect an outstanding debt. A letter before action is sent to inform the debtor that legal proceedings will be commenced if a response is not received within a given time. This would be fourteen days for a company and 30 days for an individual. Ignoring the claim or the summons will result in a judgment being registered by default and an order made to pay the whole amount plus costs and interest immediately.

County court judgment: This is a court order that will be registered against the defendant if payments awarded by the court are not settled.

Credit insurance:  This is an insurance policy taken out by a creditor to protect against a bad debt. These policies can take many forms and criteria depending on the insurance company.

Credit rating: This is a credit score provided by a credit reference agency as to the ability of a potential client in meeting his credit or loan terms.

Credit reference: This is a credit report a supplier obtains before entering into a contract with the client in order to evaluate the risk for supplying goods or services.

Creditor: A person or a company who lends you money, supplies goods or services to a customer in return for payment.

Critical illness cover: An insurance policy which provides a lump sum payment when diagnosed with a specific illness.

Current assets: Cash And other non-fixed assets that can be converted to cash easily, such as stocks, current debtors and short term investments

Current liabilities: Amounts that are owed and fall due for payment within a 12 month period, such as current creditors, bank overdraft, taxation and short term loans.

Current ratio:  A calculation which is based on the current assets being divided by current liabilities. This shows the liquidity of the company.

Cut-off-score: A score determined by a credit report that identifies whether to accept or reject the application for credit.

 

D

Database: An organized collection of data, generally stored and accessed electronically from a computer system

Debenture: A document recording the indebtedness of one party to the other. It is a promise to pay and is secured by a fixed and floating charge over the company’s assets.

Debt: an amount of money owed.

Debtor: A person or business who owes money to another party, usually called the creditor.

Debt collection agency: A company norm ally used by creditors to recover outstanding debt(s) due from the debtors.

Debt consolidation: the act of borrowing money for the purpose of repaying all (or most of) one’s other unsecured debts and being left with just one (or just a few) unsecured debts to repay.

Debt management plan: if you are unable to afford to make the full contractual payments to your unsecured creditors, this is an informal way of repaying your unsecured debts by making reduced payments (i.e. payments less than the contractual payments) to creditors, usually over a much longer period of time than originally agreed with creditors. The plan can be self administered or can be organised with the help of a debt management company. Some creditors may agree to suspend or cancel interest, charges and penalties on the loans provided while the debtor keeps up making the (reduced) repayments. Entering a DMP will adversely affect your credit ratings.

Decree: Scottish equivalent of an English judgment

Default notice: Document issued by a creditor when the debtor breaks the terms or conditions of an agreement and signals that the creditor intends to take steps to recover money owed.

Deficit:  when your income is less than your expenditure.

Direct debit: an instruction given to a bank or other financial institution to pay a third party a certain  amount of money  each month or on another specified time scale.

Discount rate: an interest rate that is reduced for a certain amount of time before it reverts back to the standard stated rate.

Discretionary Limit: The maximum amount of a transaction which is covered by credit insurance.

Disposable income: the amount of money available to spend once the fixed and essential payments have been.

Dividends: Payments made to shareholders on their investments. Usually paid annually and/or six monthly.

Dormant company: A limited liability company that is not trading but still listed as live. Sometimes dormant companies are incorporated to protect the business name.

E

Early repayment charge: A charge, also called an early settlement fee, payable to a lender, if the debt is settled before the agreement has ended.

Enforcement: Once a debt claim has been successfully made through the courts and a judgment has been entered against the defendant the recovery of money can be physically enforced. This is undertaken normally by an enforcement office who is  bailiff or court sheriff.

Equity: The difference between the market value of a fixed assets and the amount outstanding on a mortgage and any other loans secured on the assets.

Estate: Relates to any assets owned such as property, cars, personal belongings shares and cash.

Eviction: a legal process used to force a person(s) to leave their home or business address.

Ex-parte: a term meaning ‘without attending’, used when applications are made to court without anyone attending in person.

Expenditure: Money spent from incomes received

F

Factoring: A financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.

Final discharge: A court notice that shows when a bankruptcy is over and bankrupt individual is now are debt free.

Firm: A business being operated by 2 or more partners

Fixed assets: Tangible or intangible long term assets not normally intended for resale.

Fixed charge: A charge over a specific type of assets such as property, machinery or book debts.

Fixed rate: An interest rate that doesn’t change for a set period of time.

Fixtures & Fittings: The value of current book assets less depreciation

Floating charge: A temporary charge created by a lender covering all of the company’s assets

Fraud: deliberation to  deceive a person or business with false information about themselves in order to gain an advantage.

 

G

Goodwill: This is an intangible fixed asset

Gearing: A ratio of money borrowed compared with unencumbered capital.

Gross profit: Net sales after deduction direct sales costs.

Guarantee: A written promise by one party to meet a contractual commitment of another party in the event of a default.

Guarantor: A party who agrees to pay a debt if another party fails to do so.

H

Hire purchase: A credit agreement for the purchase of goods by way of instalments over a specific period of time. Ownership of the goods is after all payments have been made.

Holding company: A company which holds more than 50% of the issued share capital of a number of companies known as subsidiaries.

I

Income payments order: the Official Receiver or Trustee in bankruptcy can apply for an income payments order if they feel that the debtor can make a regular contribution into the bankruptcy for the benefit of creditors.

Income statement: A financial statement that details the sales, profit and loss figures, and expenses for a given period normally 12 months but larger companies produce quarterly and 6 months figures.

Indemnity: A guarantee against default, loss, expense or wrong doing incurred.

Independent financial adviser (IFA): A financial advisor who has no allegiance to any single provider and offers independent advice on financial products and investments.

Income protection: An insurance cover which provides a regular monthly income if unable to work due to an accident or illness.

Income support: A means-tested benefit for people on low income.

Individual voluntary arrangement: a legally binding agreement between debtors and their creditors whereby an agreed payment the debts is made over a set period of time.

Informal arrangement: An informal agreement to make reduced payments to creditors without the need for legal intervention.

Insolvency: An inability to repay debts in a reasonable amount of time as and when they fall due and where the value of assets is less than the liabilities.

Insolvency Practitioner: A person who is legally allowed to help people or businesses  who are unable to repay their debts.

Intangible assets: These are fixed assets that relate to patents, goodwill, trademarks, etc.

Interest expenses: Interest charges incurred usually shown as a net figure after deductions of any interest received.

Intermediate assets: Form part of the fixed assets and relate to trade investments, subsidiaries, investment properties and shares in related companies.

J

Joint venture: A partnership set up between two or more parties in a project to increase their pricing competitiveness and output capability.

Joint-stock company: A company that is quoted on a Stock Exchange and whose shares are held by members of the public.

Judgment: Usually an abbreviation for County Court Judgment. It is awarded to the plaintiff in a successful action against a defendant who has not settled their debt.

L

Late Payment of Commercial debts (interest) Act 1998: This Act provides qualifying creditors with a statutory right to claim interest on qualifying debts from qualifying debtors. This Order, made under section 6 of the Act, sets the rate of statutory interest which may be claimed.

Lender: A person or company who lends money to another party.

Leverage buy-out: A financial transaction in which a company is purchased with a combination of equity and debt, such that the company’s cash flow is the collateral used to secure and repay the borrowed money.

Liability: arises when a party is responsible for paying a debt.

Limited  company: A type of business structure that has been incorporated at Companies House as a legal ‘person’. It is completely separate from its owners, it can enter into contracts in its own name and is responsible for its own actions, finances and liabilities. The owners of a company are protected by ‘limited liability’, which means they are only responsible for business debts up to the value of their investments or what they guarantee to the company.

Limited liability: The liabilities of shareholders are limited to the face value of the  shares held. Once the shares are fully paid up the shareholders have no further liability for the debts of the company.

Limited liability partnership: A partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In a LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.

Liquidation: A term used to describe the winding up of a company that is unable to pay its debts. It involves the realisation of assets and the distribution of proceeds to the creditors.

Liquidator: An insolvency practitioner duly appointed to wind up and settle the affairs of a company.

London Gazette: The London Gazette is one of the official journals of record or Government gazettes of the British government, and the most important among such official journals in the United Kingdom, in which certain statutory notices are required to be published.

Long-term liability: Amounts owed by a company that fall due after 12 months. Also known as a long term debt.

M

Minority Interest: A claim on a company’s assets due to a minority shareholder(s). Can relate to proposed dividends as yet paid or claimed.

MIS: Management Information Systems. It is an information system used for decision-making, and for the coordination, control, analysis, and visualization of information in an organization. The study of the management information systems testing people, processes and technology in an organizational context

Monopolies and Mergers Commission: A statutory body set up to inquire into and to report on questions relating to specific mergers, monopolies, anti-competitive practice, the performance of public sector bodies, and the regulation of certain privatised industries.

Mortgage: a loan taken out which is secured against property and is normally used to purchase a house.

N

Net worth: Shows the financial standing of a company. It is calculated by deducting the total liabilities from the total assets.

Nominal capital: This is the amount of capital in shares a company is legally authorized to make available to shareholders.

O

Official Receiver: An officer of the court and Civil Servant employed by the insolvency service to manage the compulsory winding up of a company. The Official Receiver is normally employed when a company has insufficient assets for a private insolvency practitioner to undertake the winding up of a company.

Operating income: Gross profit of a company less the administrative expenses, salaries and depreciation, etc.

Ordinary shares: These are usually the voting shares of a company which have no fixed rate of dividend.

Outright possession order: A court order that is granted at a repossession hearing when the court gives the lender ownership of a property and eviction date is set for 28 days later, by which date the occupant will need to remove themselves and their belongings from the property.

P

Parent Company: A company that owns or has a controlling interest in subsidiaries. A controlling interest would be holding over 50% of the issued share capital which has voting rights.

Partnership:  A non limited business which two or more people own. The partners will be personally liable for the business debts.

Preference shares: These are shares that normally carry a fixed rate of dividend payment. There are various types of preference shares and usually do not carry voting rights

Profit: This is an amount achieved after deductions have been made from the sales.

Pro-forma invoice: This is an invoice issued to the buyer prior to the release of goods or service. It is not shown in then accounts until it has been paid.

Proprietor: An individual who owns a business which has no limited liability. The proprietor is personally responsible for the businesses debts.

Proof of debt form: A form used by a creditor to submit their claim in an IVA or bankruptcy.

Property restriction: a creditor may put a restriction on a property during an IVA, which prevents the owner from selling or otherwise disposing of the property with the prior express permission of the creditor. The restriction usually only applies during the term of the IVA.

Pro-rata: This means ‘in proportion to’ a term that is used mainly in relation to the repayment of debts. The repayment amount to each creditor is in exact proportion to the size of the debt owed to each.

Proxy: When a creditor is unable to attend a  meeting of  the creditors, a third party will be  assigned a proxy to attend and vote on their behalf.

Public Limited Company (PLC): A PLC is formed in a similar way to a private limited company, but with slightly different requirements. There must be at least two directors, two shareholders and a company secretary. Memorandum and Articles of Association are filed at Companies House and govern the way the company is run. The shareholders have limited liability for the debts of the business, and the directors also enjoy a degree of protection from liability, although in certain circumstances such as fraud or gross negligence, a company’s directors can be held responsible for the company’s actions.

Q

Quick assets: These are assets usually held in cash or a form that can be quickly converted into cash. The ratio of these assets to current liabilities provides an assessment of a company’s  liquidity and solvency.

R

Receivership: Formerly known as Administrative Receivership It is a situation in which an institution or enterprise is held by a receiver—a person “placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights”—especially in cases where a company cannot meet financial obligations or enters bankruptcy.

Registered capital: It is an amount of money invested in a limited, unlimited and public limited company. The investors receive shares against the amount invested.

Registered company: This is a company which has been incorporated under the Companies Act at the Registrar of Companies.

Registered office: It is the legal seat of a registered company where official documents are normally served. The address is recorded at Companies House.

Repossession: A legal process whereby a mortgage lender or a secured loan provider takes ownership of a property. This can arise when the owner occupier fall into arrears with mortgage payments and the lender can seek repossession and eviction from the property.

Remortgage: this arises when a new mortgage is taken out to pay off the existing one, using the same property.

Reserves: The value of the assets over and above the issued capital

Retained earnings: Represents the accumulated net income after dividends and taxes have been paid from previous years.

Retention of title: A title clause which is a provision in a contract for the sale of goods that the title to the goods remains vested in the seller until the buyer fulfils certain obligations.

Return of allotments: This is the process of adding new shares into a company. For example, a company formed with 1 share can complete a “Return of Allotment of Shares” and increase the amount of shares to a new amount.

Revaluation Reserve: A surplus arising from the appreciated value of a property. It is the difference from a former book value  and the present book value.

Right of Off-Set: This right can be exercised without your permission when you have a current account (in credit) and a credit card or loan (in arrears) with the same financial institution. The creditor can take funds out of your current account to cover the payments you have missed on your credit card or loan account.

Rights issue: A share issue by a company usually below current market value to existing shareholders.

S

Secured charges: These are created when a company borrows money using its assets as security. The charges are registered at Companies House to show unsecured creditors that there is a preferential claim on the company’s assets.

Security: Collateral provided by a debtor to support the promise to pay an outstanding debt. The collateral used could be property, land or shares, etc.

Shares: These are units of ownership interest in a company or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends. The two main types of shares are ordinary shares and preference shares.

Shell company: A non-trading company that exists only on paper and has no office and no employees, but may have a bank account.

Sole trader/sole proprietor: An individual who owns and runs an unincorporated business on his own. This individual is personally liable for the debts of the business.

Standing order: an instruction that you give to your bank to pay a certain person or company a fixed amount each month.

Statutory demand: this is a legal document requiring the debtor to pay an outstanding debt within 21days, failing which the creditor can start bankruptcy proceedings against the debtor. The debt has to be a certain minimum amount.

Statutory interest: The interest you can charge under The Late Payment of Commercial Debts (Interest) Act 1998 if another business is late paying for goods or a service. This is 8% plus the Bank of England base rate for business to business transactions. This is only applicable if there is not a different rate of interest in a contract.

Stock and work in progress: This represents the current value of stocks and work in process.

Sub-prime lending: Refers to the practice of lending money to persons with a poor credit history, usually at interest rates considerably higher than high street rates, reflecting the enhanced risk to the lender.

Subsidiary: A company which is controlled by another company. The controlling company holds more than 50% of the issued voting  shares of the subsidiary undertaking.

T

Take over: The acquisition of one company by another. Usually in the form of acquiring all or a majority shareholding.

Terms and conditions: This is the contractual agreement a buyer enters into when purchasing goods or services. Also known as Terms of Trade and Conditions of Sale.

Third party debt order: A legal proceeding to recover moneys due from a third party to the debtor.

Tracker rate: An interest rate that follows the increases and decreases of another interest rate such as the Bank of England base rate or the European Central Bank base rate.

Trade creditors and accruals: Amounts owed for goods or services received yet to be invoiced.

Trading address: This is the address where a company conducts its business from and where the assets are located.

U

Uncalled capital: Relates to issued shares that have not been fully paid up.

Undischarged bankrupt: A person who is still listed as bankrupt and not yet able to resume business dealings or seek credit.

Unlimited liability: A liability to pay all the debts incurred by a business. For a sole trader his/her personal assets may be called upon if the business has insufficient funds to meet its debts.

Unsecured creditor: This is a creditor who is owed money but has no security for the debt. Also known as a trade creditor.

Unsecured loan: Refers to personal loans, credit cards, store cards, catalogues and overdrafts where the monies loaned are not secured on any asset or property.

V

Variable rate: Interest rate that can increase or decrease at the discretion of the lender.

W

Waiver: A creditor may waive late payment fees in order to agree an amicable settlement for an outstanding debt.

Warrant of execution: Where a debtor fails to pay a county court judgment, the creditor can ask the court for a warrant of execution which would give bailiffs the right to go to the debtor’s property and acquire goods to the value of the debt.

Warranty: A promise or covenant offered by a seller to the purchaser guaranteeing  the goods or services are as described and the remedies available in the event of default.

Winding up order: This is a court order that forces an insolvent company into compulsory liquidation – a process in which the court appoints an Official Receiver to liquidate all of the company’s assets in order to repay creditors.

 

Working capital: The funds available to carry out day to day business activities. Calculated  as current assets less current liabilities.

 

Z

Z-scoring: A technique for forecasting the failure of a company which is based on financial ratios taken from the company accounts.