Glossary
Technical terms and subject-specific topics explained in an easy-to-understand way
The KYC principle established international minimum standards for identifying customers. The goal is to combat money laundering, (economic) crime, and terrorist financing. Before entering into a business relationship, it is therefore necessary to verify the customer’s identity, assess their business model, and determine the source of their funds (money and assets). Likewise, the purpose and intended nature of the business relationship must be determined and verified. For individuals, identity verification is required, primarily through the presentation of official identification documents. Additionally, information such as occupation and income must be collected. For legal entities, the type of company, business activity, industry, industry code, and key financial indicators, among other details, must be recorded. The beneficial owner must also be identified and verified by examining the corporate structure. The business relationship with all customers must be continuously monitored, and the information documented at the outset must be updated regularly.
Both deal with the organizationorganisation of material flows along the supply chain. Both aim to increase customer value (effectiveness) and to improve the cost-benefit ratio across the entire system (efficiency). Modern supply chain management, however, goes one step further. It incorporates the structuring and coordination of autonomously operating business units within a value-added system into its analysis. This provides a cross-organizational,organisational view of all business processes and integrates all areas of business administration, such as procurement, production, distribution, marketing, controlling, etc.
EDI (Electronic Data Interchange) or EDA (Electronic Data Exchange) is a key technology for optimizing B2Boptimising BIB processes along the supply chain. Business documents are exchanged electronically across companies, industries, and countries to reduce costs, increase the speed of transactions, and minimizeminimise errors.
The goal of this technology is to automate business processes and reduce manual, paper-based workflows. Typical applications for EDI include, for example, the exchange of order information between retailers and manufacturers or invoicing: Electronicelectronic invoices are sent, verified, and processed in real time.
An electronic invoice is an electronic document that corresponds to a paper invoice in terms ofhas the same content and legal validity. The transition as a paper invoice. Transitioning to electronic invoices can significantly simplify a company’s accounting processes and save costs.
A blockchain is a decentralised database distributed across multiple servers, making it resistant to tampering or hacking. The type of information entered into this database is secondary; it could be a financial transaction, a contract, a stock, or a purchase agreement. Each change is stored in groups called blocks and recorded transparently in the ledger. Block by block, the data is verified and sealed. This ensures that every piece of information, transaction, or change is protected and visible to anyone.
Applications are wide-ranging and relevant wherever transparency and traceability are key: contract management, copyright, tax law, and financial transactions.
Identifying financial aspects within the supply chain and optimising control over capital costs. Supply chain finance is the cross-company optimisation of financial structures and cash flows to maximise the
How do I secure my liquidity to secure the continued existence of my business? This is one of the core questions facing every company.
Banks’ lending policies under Basel IV, the consequences of globalisation, intensified competition in many industries, and declining payment discipline are creating new challenges, particularly for small and medium-sized enterprises. Alternative forms of financing, such as factoring, leasing, or crowdfunding, provide valuable alternatives to traditional bank financing and create additional liquidity opportunities beyond conventional channels.
Forfaiting refers to the sale of receivables to a third party, who assumes both the receivable and the risk of non-payment at the same time. This type of receivables sale is commonly used in export financing.
Accordingly, forfaiting and factoring share a similar basic principle: receivables are sold to a bank to optimise cash flow within the company, offering benefits for liquidity and other areas.
Despite their similarities, factoring and forfaiting differ in several important ways. For example, unlike factoring, forfaiting contracts are concluded on a case-by-case basis, and the assumption of payment risks is only an option in factoring and not a given, to name just two of the differences.
In German accounting, a “debtor” is the term used for the party owing money for goods and services.
Unlike cash sales, where payment is made at the time goods or services are delivered, transactions on account involve a period before payment is received. During this time, the seller bears the risk that the outstanding invoice may not be paid. This accounts receivable risk weighs on the seller’s balance sheet until payment is received. Factoring reduces this risk because receivables are purchased and the money is deposited immediately into the seller’s account. If requested, the factoring bank can also assume responsibility for managing debtors and the credit risk.
Del credere refers to the risk of a bad debt.
For example, the risk that one of your customers will fail to pay an outstanding invoice. Protection against this risk can be included in a factoring agreement, if requested.
In addition to converting receivables into immediate liquidity, factoring offers another key advantage: insurance protection against payment defaults. For companies, this means that the insurance company handles customers who are unable to pay.
Many companies have to deal with delays because customers are increasingly paying invoices late. Active receivables management helps optimise cash flow and maintain a strong liquidity position.
With factoring, a bank purchases a company’s receivables and immediately advances up to 80–90%. The remainder paid as soon as the customer has settled the invoice.
This makes factoring an attractive financing option for companies with fluctuating revenue, high accounts receivable, or long payment terms.
The costs associated with the additional security and flexibility that factoring provides are often offset by suppliers’ early payment discounts.
In business administration, liquidity refers to the sufficient availability of cash and cash equivalents.
Along with excessive debt, a lack of liquidity is one of the leading causes of corporate insolvency. Even companies with strong order books can face liquidity constraints, for example, when customers fail to pay or pay far too late, while the company must continue to meet its own financial obligations, such as purchasing raw materials or repaying loans. A lack of liquidity also limits a company’s ability to plan. For example, it may prevent the company from taking advantage of early payment discounts. Factoring helps secure liquidity by providing immediate access to funds from completed sales before customers have paid their invoices.
Which of a company’s activities fall within its core competencies and should remain in-house? And which services can be performed better and more cost-effectively by an external provider? These are two key questions companies need to address when considering outsourcing.
Outsourcing is the transfer of a company’s services to external providers. Because better qualified, specialised suppliers of components and services are integrated into the value-added process, production, development, or service overhead costs can often be significantly reduced.
In the context of factoring, outsourcing typically refers to delegating accounts receivable management to the factoring provider, which delivers significant benefits for companies.
A balance sheet reduction occurs when both total assets and total liabilities decrease by the same amount (both sides of the balance sheet are “reduced”), resulting in a lower balance sheet total. This happens when receivables on the asset side leave the company, and accounts payable decrease by an equal amount. Balance sheet reduction is also referred to as an asset-liability reduction.