Copy of `Better Payment Practice - Credit glossary`

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Better Payment Practice - Credit glossary Category: Economy and Finance > Credit Date & country: 11/11/2007, UK Words: 153

Prepaid expenses
Rates, rent, insurance premiums, etc. normally payable in advance.

Private Company
A private company is any registered company that is not a public company. The shares of a private company may not be offered to the public for sale. The legal requirements for such a company are less strict; for example, there is no minimum issued or paid-up share capital requirement and small and medium-sized companies need not file full accounts.

Pro forma
Can be An invoice drawn up by seller and sent to the buyer to confirm the details of a contract; A polite reminder that a debt will be due for payment;

Profit (loss)
Profit is the excess of income over expenses. Loss is the excess of expenses over income.

Profit and loss statement
A business financial statement that lists revenues, expenses, and net income throughout a given period. Because of the various methods used to record transactions, the monetary values shown on an income statement often can be misleading. Also known as Earnings report, Earnings statement, Operating statement, or Income statement.

Profit Margin
A measurement of trading success â€` the calculation of profit as a ratio to (a)net sales (b) capital.

Proprietor
Individual ownership or sole proprietorship; it is the type of business unit in which only one person is liable. It is the simplest form of business organisation. The owner is responsible for all management decisions, takes all the profits and bears all the losses. His liability is unlimited, and not only his business assets, but the whole of his private belongings (with certain minor exceptions) can be taken from him to satisfy business debts.

Public Limited Company
A company registered under the Companies Act (1980) as a public company. Its name must end with the initials `plc'. It must have an authorized share capital of at least £50,000, of which at least £12,500 must be paid up. It may offer shares and securities to the public. The regulation of such companies is stricter than that of private companies. Most public companies are converted from private companies, under the re-registration procedure in the Companies Act.

Public record information
Information obtained on business concerns etc. from sources generally available to any person who may be interested in such information. The sources of this type of information are, for example, the Register of County Court Judgments and the London Gazette.

Receivership
There are three types of receivership: An administrative receiver who is appointed by a debenture holder under a fixed or floating charge debenture; A law of property Act receiver who is appointed over property under The Law of Property Act 1925; A Receiver appointed by the Court. (This is rarely used in practice).

Red lining
The practice of declining an applicant for credit wholly on the grounds that he/she lives at an address which is deemed to be unsatisfactory. This practice is outlawed by the Office of Fair Trade. (The name derives from the original practice of drawing a red line around an address on a map.)

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

Registered company
A registered company is registered under the Companies Act, with the Registrar of Companies. A company may be registered either as limited private company, a public limited company or an unlimited company. See also, Private company.

Registered office
The address of a company at which all documents must be served, in order for service to be effective. It is recorded at Companies House and can be found by referring to company headed paper or carrying out a company search.

Reservation of title clause
Also known as a Romalpa clause or a Retention of title clause it is a clause reserving the seller`s title to the goods until those goods are fully paid for. It imposes a duty of care in respect of the goods on the buyer and purports to entitle the seller to recover the goods or trace the proceeds of sale. This is a complex area, and any company wishing to incorporate such a clause into its contracts/terms and conditions, should seek specialist legal advice.

Reserves
The value of net assets over and above the issued capital.

Retained earnings
Also known as the P& L account or revenue reserves, represents the accumulated net income, not paid out as dividends etc, from previous financial years, and not transferred to the other reserves, and carried forward to the balance sheet. Retained earnings form part of a company`s net worth.

Retained earnings at end
The accumulated income, not paid out as dividends etc., carried forward to the current years` balance sheet.

Retention of title clause
Also known as a Romalpa clause or a Reservation of title clause it is a clause reserving the seller`s title to the goods until those goods are fully paid for. It imposes a duty of care in respect of the goods on the buyer and purports to entitle the seller to recover the goods or trace the proceeds of sale. This is a complex area, and any company wishing to incorporate such a clause into its contracts/terms and conditions, should seek specialist legal advice.

Return of allotments
When a company commences operations it will not normally be in the position to file an annual return. Therefore if the persons forming the company want to take up and pay for shares, they make what is called a return of allotments, a simple form showing how many shares have been allotted and the names and addresses of the allottees. A company which increases its issued capital between filing annual returns, normally issues further shares by making such an allotment.

Revaluation reserve
Amount arising from the appreciated value of property; the difference between the former book value of property on the balance sheet and the present (revalued) book value of the property.

Rights issue
An issue by a company of new shares which are offered, usually at a price below current market value, to existing shareholders of the company, in proportion to their present holdings (usually done to raise additional capital).

Romalpa clause
Also known as Retention of title clause or a Reservation of title clause it is a clause reserving the seller`s title to the goods until those goods are fully paid for. It imposes a duty of care in respect of the goods on the buyer and purports to entitle the seller to recover the goods or trace the proceeds of sale. Known as the Romalpa clause from the case Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd (1976). This is a complex area, and any company wishing to incorporate such a clause into its contracts/terms and conditions, should seek specialist legal advice.

Secured charges
Secured charges are created when a company borrows money against security. The company is then required to register information about such charges at the Companies` Registry. The reason for this is to show ordinary unsecured creditors that in the event of a company being dissolved, someone else has prior claim over some or all of the assets of the company.

Secured creditor
A creditor who holds title to an asset of his debtor, which can be held as security for a debt and sold if necessary to recover the debt (e.g. a company taking out a mortgage with a bank to create overdraft facilities, will put up its property as security for the bank, to cover the eventuality of being unable to pay back any money owed).

Security
Collateral provided by a debtor to support his or her promise to pay. A creditor may require some rights over valuable property in order to lend or supply, e.g. a charge over land. The security will be used to satisfy that creditor in the event of default.

Selling-administration expense
The expenses other than financial or payroll e.g. rates, telephone, travel, etc.

Set-off
A form of defence whereby a debtor may acknowledge the claimant`s demand but pleads his own claim in order to extinguish the claimant`s demands either in full or in part.

Share premium
The amount paid to a company by shareholders, in cash or other consideration, over and above the nominal value of shares issued to them.

Shares
The nominal capital of a Limited company is divided into shares which may be in units of £1 or more, or 50p or as small as 0.05p. There are two main types of shares, ordinary shares and preference shares.

Shell company
A limited company that has never started, or has ceased its trading activities (e.g. a subsidiary transferring its business to its parent or a fellow subsidiary), but has not been dissolved. Annual returns are still filed, but the accounts state that the company did not trade during the year. A company is kept on the “live index� in this way, so that it can be easily reactivated if it wants to start trading again in the future. It is also known as a Dormant company.

Sole trader-proprietor
An individual who runs an unincorporated business on his or her own. Generally, a sole proprietor of a business is known as a sole trader and a sole proprietor of a professional practice is known as a sole practitioner.

Start-up scorecard
A scorecard which has been designed rather than statistically derived. These usually apply in situations where there is no (or insufficient) data available from which to develop a statistical scorecard. This is typically for new product launches. Also known as Generic scorecards.

Statutory company
A company formed by a special Act of parliament.

Statutory interest
The right to interest on commercial late payment under the Late Payment of Commercial Debts (Interest) Act 1998. For debts pertaining to contracts made between 1st November 1998 and 6th August 2002, the legislation is referred to as the Late Payment of Commercial Debts [Interest] Act 1998. For debts pertaining to contracts made on or after 7th August 2002, the legislation is referred to as the Late Payment of Commercial Debts [Interest] Act 1998, as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002. For further information about statutory interest please see: http://www.payontime.co.uk/legislation/legislation_main.html

Stock and work in progress
Represents the current estimated value of stocks after allowing for any deduction in respect of damaged or obsolete stock together with the Directors` assessment of the value of the work in progress.

Stock turnover
Measures sales turnover as a ratio of stocks, and is intended to show how fast stock is moved. The higher the score, the more liquid the position.

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

Take over
An offer by one company to another, for a large proportion or all of its shares, to bring it under control. The offer sometimes consists of a proportionate number of its own shares, together with a cash payment per share, in exchange.

Technically insolvent
Where a company has a deficit of shareholders funds but can have a positive working capital or long-term borrowings allowing it to continue trading.

Third party debt order
A legal proceeding to recover money that is owed to the debtor by some third party.

Total assets
A total of the current and fixed assets.

Trade creditors & accruals
Amounts currently owing for goods or services received, whether invoiced or not.

Trading address
The address of the company where business is carried out if different from the registered office and where the company`s assets are likely to be found.

Uncalled capital
Shares can be issued but only partly paid and the difference between the face value and the amount paid is known as uncalled capital.

Undischarged bankrupt
A person who has not been granted his discharge or formal permission to resume business dealings. An undischarged bankrupt cannot seek credit over the sum of £50 without disclosing his position to his creditor, and he may not be a director of a company or engage in business under another name.

Unlimited liability
A liability to pay all the debts incurred by a business. For a sole trader/proprietor the liability of the owners is not limited to the amount the owner has agreed to invest. All debts of the business must not only be paid out of the assets of the business but also, if necessary, out of personal assets.

Unsecured creditor
A creditor who has no security for his debt and will therefore rank with other unsecured creditors on an equal basis with no preference in the event of a liquidation or bankruptcy.

Waiver
The abandonment of a right by one party so that afterwards he or she is prevented from claiming it. It is possible to waive rights by conduct or by express agreement.

Warranty
Promise or covenant offered usually by a seller to a buyer to describe the goods or services offered and the remedies available to the buyer in the event of default.

Winding up order
An order made by the Court that a company should be wound-up and a liquidator appointed to wind up its affairs, after an interested person or company has successfully petitioned the court for this action.

Winding up petition
A petition presented to the Courts if a person or company thinks that a company should be wound-up and enter into compulsory liquidation. In many cases one company will petition to wind up another because it is owed money and cannot recover the debt.

Working capital
The excess of current assets over current liabilities. Used to indicate the funds available for conducting day-to-day business.