Glossary

The Graydon Glossary of Credit Management Terms has been designed to help you understand the terminology being used within the credit industry.

Annual Report
The report of the directors of a company, to the shareholders, presented each financial year. The report contains such things as the profit and loss account, balance sheet, and activities of the company throughout the year.

Bad Debt
Money owed to a company which is now unlikely to be paid.

Balance Sheet
A statement showing assets and liabilities of a business at a certain sate. The Balance Sheet forms part of the Accounts of a company and is normally prepared annually.

Bank Reference (or Opinion)
A statement made by a bank usually to another, regarding the standing of a customer.

Bankruptcy
A person is declared Bankrupt by a Court which may happen at his own request or as a result of action taken by a creditor. A receiver will be appointed and assets be realised as effectively as possible.

Capital
The general idea behind the word ‘capital' is "the money you started with" or "the money you have", but the term is often loosely used and we should always make it clear what we mean. Combined with other words it can have a more precise meaning.

Nominal capital is the amount of money that can be put into a Limited or Unlimited company in the form of shares. For Public companies this is known as Authorised capital. The term Registered capital is also sometimes used.

Nominal capital is divided into shares which can be of different classes and values. Different classes of shares may carry varied voting rights, divided rights, etc. Details are given in the Articles of Association of a Company.

Cash
Cash in hand, either petty cash or current accounts at the Bank.

Cash Against Documents
See: Documentary terms.

Cash Flow
The regular receipt of money to fully cover outgoings.

Companies' Registry
The official Government Registry where all Limited companies, Private and Public, Limited partnerships etc., have to file relevant documents required under the various Companies' Acts.

Company Number
When a Limited company is formed it is given a Company Number, individual to itself, which it keeps, even if it changes its name, until it is dissolved. This number is also referred to as the Company index Number or Registration Number. All companies are required by law to show this number on their letter-headings.

County Court Judgments
A concern or person may take another to Court for non-payment of monies alleged due. Judgment will be given against the defendant or the plaintiff (the party bringing the action).Judgment is given for a particular amount, which may be for all or part of the original claim. In England and Wales, the County Courts are used for many of these cases.

Credit
The word ‘credit' is derived from the latin word ‘Credo', its meaning being ‘I believe'. Credit is the power to obtain finance, materials or services on trust by promising to pay for them at some definite time in the future.

Credit Insurance
Insurance against bad debts. This form of insurance has expanded since it became the practice for the insured to accept liability for an agreed proportion of the debt, as otherwise there would be little to inspire the creditor to hurry the debtor for payment.

C.R.O.
An abbreviation of Companies' Registry Office.
See: Companies' Registry.

Current Assets
Cash or other assets readily convertible into cash (e.g. stocks, debtors, short term investments).

Current Liabilities
Amount which fall due for payments within 12 months of the Balance Sheet date (e.g. creditors, bank overdrafts, current taxation etc.).

Current Ratio
A calculation made to show the strength of the working capital position. This is calculated as follows: Current assets

Current liabilities
The higher the ratio in favour of those assets, the greater the protection for trade creditors.
See: Working Capital

Days Sales Outstanding
See: D.S.O.

Debtors
The amount currently due from debtors within the next 12 months from Balance Sheet date.

Debt Collection Agency
A company which operates as debt recovery service for the collection of overdue accounts, on behalf of Subscribers. Graydon offers such a service as part of its product range.

Dissolved Company
A company which has been would up (by a Winding Up order), has gone into Voluntary Liquidation, or has been struck-off the "live' index of companies (under section 652 of 1985 Act) and is therefore no longer in existence.

D.S.O.
Days sales outstanding; an average guide to the length of time it takes a company to receive payment for goods sold.

Factoring
Factoring is a financial service by which a concern operating as a "Factoring House' or a "Factoring Agency" will buy outright the debts of a client. The latter is then relieved of losses it may incur because of slow payment or financial difficulties of a customer and the trouble of collecting outstanding accounts.

Firm
A business unit formed for the purpose of carrying out some kind of trading activity. The term "firm" is used in many ways, the most basic meaning being a business carried on under a trading style by a sole proprietor or partners. Many people use the term Firm to embrace any business i.e., Private Limited and Public Limited companies, but in GRAYDON we use it only for Unincorporated businesses.

Foreign Index
An index maintained at the Companies' Registry, where Overseas incorporated companies, operating in this country, are obliged to file certain details. The registered numbers of these companies are prefixed with "FC".

Gross profit
Net sales less cost of goods sold.

Holding Company
A company formed for the purpose of the exercising financial control over a number of operating companies by buying up all or the majority of their shares, A company has a controlling interest in another when it has acquired over 50% of its issued shares which have voting rights.

The company having the majority interest in another is also referred to as the Parent Company.

An advantage to this form of organisation is that the members of the group (subsidiaries) can retain their original identities and the goodwill that goes with them. A drawback, however, is that it makes possible what is known as Pyramiding. This is when the holding company at the top has a controlling interest in a number of companies, each of which may have its own subsidiaries, and some of the latter even further subsidiaries. Then the total capital of all the companies under the control of the holding company may be many times greater than the holding company itself. Therefore, complete control of a whole group can be obtained by a person holding just over 50% of the shares in the holding company.

Income Before Tax
Operating income less any interest changes.

Insolvency
A business or individual is said to become insolvent when it can no longer meet its debts. This happens when the current liabilities i.e. excluding debts not due for repayment till some fixed date in the distant future and excluding the proprietors' interest) exceed the total value of the assets of the business.

Intangibles
See: Goodwill/Intangibles

Interest Expense
Any interest changes incurred, normally shown as a net figure after deduction of any interest received.

Joint Venture
A partnership set up between two or more companies, usually joining specific areas of their activities together, and usually to enhance their capabilities and competitiveness in particular areas or markets or to undertake a specific project.

Letter of Credit
See: Documentary Terms

Limited Liability
The liability of shareholders in a Limited Liability company, Private or Public, is limited to the face value of the shares held. If therefore, the shares are fully paid, the shareholder has no liability for the debts of the company. If the shares are partly paid, the liability is limited to the unpaid (face) value of the shares.

Limited Liability Company
A company formed to carry on a trade of business where the shareholders (‘owners') responsibility for the debts of the company is limited to the nominal value of the shares they hold in the company.

Also see: Limited Liability

The two main types of Limited company are the PRIVATE company and the PUBLIC company. The main differences between the Private and Public company are:

1) Private

• a) Requires a minimum of one shareholder.
• b) Imposes restrictions on the transfer of its shares and a shareholder cannot disposer of his shares.
• c) The company cannot invite the public to take up its shares or debentures.

2) Public

• a) Require a minimum of 2 shareholders.
• b) Shareholders are able to buy and sell shares at any time.
• c) The company can invite the public to take up its shares or debentures in order to raise further capital.

Liquidation
This is process of "winding-up" or terminating a company, usually but not always, because of insolvency. The process involves the appointment of a liquidator to sell off all the assets of the company, paying all the liabilities of the company, so far as possible, and distributing any remaining funds, if any, to the owners (shareholders).

Liquidation may be Compulsory - as a result of a Court order or Voluntary - following a meeting and resolution of the shareholders'.

Long term debt
Amounts not falling due for payment within 12 months of the Balance Sheet date. This is a long term liability.

Net Income/Net Loss
Profit (or Loss) after tax less extraordinary items.

Parent Company
See: Holding Company

Private Limited Company
See: Limited Company

Private Unlimited Company
See: Unlimited Company

Profit (Loss)
Profit is the excess of income over expenses. Loss is the excess of expenses over income. Generally, most analysts will be most interested in the pre-tax profit or loss figure.

Profit Margin
A measurement of trading success, calculated as pre-tax profit/loss as a percentage of sales turnover.

Public Company
See: Limited Company

Small Company
A small company is defined as one whose turnover does not exceed £2.8 million, whose balance sheet is not less than £1.4 million and whose average number of employees does not exceed 50.

Small companies are exempt from filing Profit and Loss Accounts, file an abbreviated balance sheet and notes and, if required, a special auditors report is prepared.

Accounts do not have to be audited if turnover is less than £per annum and the balance sheet total is less than £1.4 million.

Subsidiary
A company controlled by another company, the controlling company holding over 50% of the issued voting shares of the subsidiary company.

Total Assets
A total of the current and fixed assets.

Total Current Assets
The total of all current assets.

Total Current Liabilities
The total of all current liabilities

Trade Creditors & Accruals
Amounts currently owing for goods or services received, whether invoiced or not.

Turnover
Or "Sales turnover" representing the gross income from the provision of goods or services after allowing for trade discounts, VAT, etc.

Unlimited Company
A Company is Unlimited when each of its members is liable for the whole of its debts. An Unlimited company is incorporated under the Companies' Acts, but as the shareholders do not have the privilege of limited liability, the company is not required to file Accounts and disclose other information that Limited Companies have to.

Unlimited Liability
A person or business form is stated to have unlimited liability when the person or owners of the business are liable for all of its debts.