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Aug
18
2015

5 Commonly Misunderstood Financial Terms

Posted by in General Information, Small Businesses

The finance industry can be confusing, to say the least. And much of that confusion comes from not fully understanding what certain words and terms mean. Below, we clear up some commonly misunderstood financial terms:

Business1. Accounts receivable

This term refers to money owed to you by clients. Most companies send invoices outlining the amount due and due date.

2. Bankruptcy

When a borrower — be it an individual or a company — cannot repay its debts, it goes into bankruptcy. This legal process involves valuing and selling off assets to pay back all debts.

3. Factoring

Also known as accounts receivable factoring and invoice factoring, factoring is a way for businesses to acquire the funds they need. With factoring, a company sells its invoices to a factor for fast cash.

4. Rating

In the finance world, this word refers to the ability of a company to repay its debts. The assessment is made by a ratings agency, and it’s based on the company’s creditworthiness.

5. Working capital

A company’s working capital is measured by its ability to make payments within the next 12 months. To calculate a business’ working capital, subtract its liabilities from its current assets.

At RMP Capital, we make funding your business easier! Don’t let misunderstanding these or any financial terms cause cash flow issues for your company. Feel free to reach out to us with any questions: 631.738.0047. Our expert staff can help explain any finance words or terms that may be confusing you.

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