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Glossary of international financial and credit terms | TCM Group

TCM’s Glossary of International Financial and Credit Terms

p-icon The meanings of words, just like the value of shares on the stock market, can be extraordinarily volatile. This is especially true in niche industries where the language of the trade is constantly evolving in response to new technologies, developments in national and international laws, and sea changes in domestic and global economics.

This is where TCM’s Glossary of International Financial and Credit Terms comes in. We have created a unique and authoritative guide to the terms most frequently used in the debt collection and credit industries, terms whose meanings often elude even hardened specialists because of the complexity of their usage.

We are confident that you will find what you are looking for here – the thread, so to speak, that will take you out of the maze of possible meanings to the definitive meaning you’re searching for.

Please contact your local TCM office should you need further consultation on any of the terms below or would like a free quote on an outstanding collections case.

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A

Account condition

The current status of an account (e.g., charged off, open, paid, and repossessed).

Account number

The unique number assigned by a credit grantor to identify an individual account.

Account onboarding

The process a company goes through with a new customer to gain all relevant information on the customer. Account onboarding allows the company to become better acquainted with the customer so as to serve the customer to the best of its ability and to achieve targeted outcomes.

Accounts receivable

Accounts receivable refers to amounts owed by a debtor (individual or company) to another entity for goods delivered or services rendered and not yet paid for.

Accounts receivable management (ARM)

The way in which accounts receivables are managed by the creditor in terms of the creditor’s set credit policy.

Account scoring

The analysis of a debtor’s account based on the debtor’s account activation information as well as the person’s or entity’s social, economic and demographic status. In relation to the debt collection industry, this scoring assists in determining the collectability of the debt from the debtor.

Accounts in good standing

The status of one’s account, which reflects positively

Accrued interest

The interest that has accrued to a debt between the last interest payment date and the calculation date.

Acid test ratio

Determines a business’s ability to meet its obligations in the short term. It is calculated as current assets, plus receivables, plus short-term investments divided by current liabilities. It is also referred to as the quick ratio.

Adjustment

Chapter 13 bankruptcy in the US provides for adjustment of debts of individuals who are in gainful employment, enabling them to keep certain property while paying off debts over a period of time (usually over three to five years).

Administration order

A court order issued at the request of a creditor to appoint an administrator to 1) wind up a debtor’s estate in order to settle an outstanding debt; 2) manage an insolvent company in an attempt to continue its operations as a going concern; or 3) wind up a business in a manner that best satisfies all creditors.

Administrative receiver

The licensed insolvency practitioner appointed by a creditor who is owed money from a company that has breached the terms of its credit facilities.

Administrative receivership

When a company fails to comply with the terms of its credit agreement, the creditor may appoint an administrative receiver to recover the money it is due. The administrative receiver must be a licensed insolvency practitioner. The company can continue to trade while in receivership but it cannot prevent a petition for its winding-up being presented to the court.

Affidavit

A written sworn statement of the facts made on a voluntarily basis by the person writing the document (known as a deponent) and under an oath in the presence of a person authorized to administer an oath by law (e.g., a notary public or commissioner of oaths).

Affidavit of service

Legal document completed by an individual to confirm a legal document has been served in the manner dictated by law.

Aged receivables

The ageing of the amounts of money owed to a business by their customers. A company will normally run a monthly aged receivables report to determine which debtors have outstanding amounts due in 30, 60, 90, or 120 days or more. This report is extracted from the company’s accounting system.

Agent

A person who is permitted to act on behalf of another person or entity is known as an agent. The person or entity on whose behalf an agent acts is generally known as the principal. The principal is bound by the actions of the agent as a result of the authority vested in the agent.

Alternative dispute resolution (ADR)

The means used by two or more parties involved in the process of attempting to settle a legal dispute outside of court.

Amortize

To pay off money owed on an asset by making regular payments over a long period of time (e.g., a mortgage loan or car loan).

Annual percentage rate (APR)

A measure of how much interest the loan will cost the borrower, expressed as an annual percentage.

Annual return

A statutory return that companies are required to submit each year. Failure to submit an annual return indicates that the company is no longer in business or is not intending to do business anymore.

Annulment of bankruptcy

Once a bankruptcy order has been granted it can only be cancelled or annulled by order of the court.

Arbitration

A form of alternative dispute resolution (ADR), arbitration is a method used for the resolution of disputes outside of court. The parties to a dispute refer the dispute to arbitration and agree to be bound by the arbitration decision (referred to as the award).

Australian Securities and Investment Commission (ASIC)

ASIC is a government body in Australia that is tasked with the regulation of the corporate, financial and market sectors. This agency is supposed to enforce the Corporations Act 2001, which governs companies and directors. ASIC has a very poor reputation within the mercantile industry as phoenix activity and insolvent trading is rampant and ASIC appears to do very little unless prominent media coverage is expected.

Asset sales

Asset sales is when a credit grantor sells their written-off accounts to a third party (e.g., a debt buyer).

Associated companies

A company that is partly owned by another company or group of companies. The parent company or companies do not consolidate the associate company’s financial statements into their statements.

Association of Debt Recovery Agents (ADRA)

A non-profit organization registered in South Africa to represent its members in the debt collection industry. In particular, ADRA seeks to interact and lobby with the government, regulating authorities, and other representative bodies in ensuring that the best interests of its members are met.

Auditor’s report

An appraisal by a company’s independent accounting professionals of the company’s financial status. This report typically covers the company’s assets and liabilities and confirms the auditors’ professional assessment of the company’s financial position.

Australian business number (ABN)

The number given to a business on registering with the Australian government. When asked for, it must be provided as it helps to prove that the legitimacy of the business.

Australian Collectors and Debt Buyers Association (ACDBA)

An organization formed to benefit the debt collection industry in Australia. The organization lobbies government and other authorities to ensure the views of the industry are heard. It generally caters for larger operators.

Authorized capital

Represents the maximum amount of share capital that a company is authorized to raise in terms of its articles of incorporation.

Automated Clearing House (ACH)

AHC is a US network used by institutions to process financial transactions electronically and in large batches. These consist of both credit and debit transactions.

Automatic stay

An automatic stay is a form of protection an officially bankrupt debtor can avail of to halt actions by creditors to collect on debts. There are, however, certain exceptions that prevent an automatic stay from being enforced.

B

Bad debt

A debt that has become irrecoverable to the creditor. A debt generally becomes irrecoverable after all attempts at amicable collection have been exhausted and/or the debtor has filed for bankruptcy.

Bad debt ratio

This ratio measures the level of uncollectable debts as a percentage of sales made on credit. It assists the credit grantor in determining if their credit policy is too lenient or too strict. An increase in bad debt ratio is a negative sign for the credit grantor, indicating there may be a need to review their credit policy. It is calculated as bad debts divided by credit sales.

Bailee

An individual who gains temporary possession (not ownership) of goods or other property under a bailment agreement.

Bailiff

An officer of the court who assists the judge in maintaining order in the courtroom. The term also refers to an officer of the court employed to serve legal documents on people—such as summonses and arrests—and to attach the debtor’s assets in the event the debtor cannot pay.

Balance sheet

A document recording the assets, liabilities, and equity of an individual or company at a specific date. It is also referred to as a statement of financial position. The balance sheet, income statement, and cash flow statement make up the cornerstone of any company’s financial statements. The balance sheet for a company is prepared annually by their external auditors.

Balloon payment

A large payment due at the end of a balloon loan agreement. It reduces the borrower’s monthly repayments and can be performed in regular intervals or as a lump sum at the end of the loan term.

Bank garnishment

Once a judgement is entered against an individual or company, the court may issue an order to the debtor’s bank to seize funds in the debtor’s bank account to the value of the judgement. The seizure typically takes place on the day the bank is served with the garnishment order. The indebted person, organization or institution whose assets have been placed under garnishment is known as the garnishee. The creditor who sets the garnishment action in motion is called the garnisher.

Bank reference

A report issued by the applicant’s bank in response to a written request by a potential lender for a reference on the applicant’s ability to meet a specified financial commitment. This report, also known as a status enquiry, will confirm the date the bank account was opened and how the account has been conducted. The applicant’s bank will only issue such a reference if it has received written consent from the applicant to do so.

Bankruptcy

The legal process by which an insolvent person or business undergoes a judicially supervised reorganization or liquidation of assets to repay a portion or all of their outstanding debts. The process is initiated when the debtor files a bankruptcy petition with a court or when this petition is filed on behalf of the creditor(s). The court typically appoints a receiver to oversee the reorganization or liquidation process in order to ensure as much debt is paid back to creditors as possible. During this phase, the person or company is said to be in receivership. A bankruptcy may be involuntary (i.e., the proceedings are initiated by the creditors) or voluntary (i.e., the proceedings are initiated by the debtor).

Bankruptcy avoidance

The US Bankruptcy Code gives the debtor scope to circumvent statutory liens even in cases where these have already come into force (e.g, through lien stripping).

Bankruptcy Code

The Bankruptcy Reform Act of 1978 regulates the conditions and mechanisms under which persons or companies in the US claiming they are incapable of settling their debts can move to obtain relief from their creditors.

Bankruptcy discharge

The legal discharge of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor, though any lien which secures the debt may survive the bankruptcy case.

Behaviour scoring

A rating structure based on numerous factors regarding an entity’s current behaviour in managing their existing credit, job, salary, total debt, and other financial indicators. These factors are processed into a score that is designed to assist banks and other lenders in assessing the risk associated with lending to an applicant. The score will predict the propensity of the applicant to manage the additional debt and could result in the application for additional credit being declined.

Bill of exchange

An unconditional order in writing given by one party to another party to pay a certain sum of money, either immediately or on a fixed future date, for payment of goods or services received. Once a bill of exchange is signed it becomes a binding contract.

Bill of lading

A document of title in international trade that ensures the exporter gets paid and the importer gets the merchandise. It is issued by the carrier, or its agent, to the shipper and serves as a contract for the transportation or forwarding of the merchandise. The bill of lading is also a cargo receipt and must be presented for taking delivery at the final destination.

Borrowing ratio

This ratio represents a company’s total debt as a percentage of long-term capital. The higher the ratio, the greater the risk associated with the company as more profits will be required to pay interest on its debts, leaving less profit for shareholders. It is calculated as total borrowings divided by long term capital.

C

Capacity

The ability to generate sufficient cash flow to service a loan.

Capital fully employed

A term used by banks when answering status enquiries on companies and that means the company’s resources are fully extended. In other words, there may be a shortage of cash.

Cash

Money in physical form such as banknotes and coins. In accounting and finance, the term refers to current assets comprising of cash and cash investments.

Cash flow

The movement of money that goes into, or out of, a business. Cash flow is usually measured during a specified, limited period of time.

Certificate of incorporation

A legal document that is required when one establishes a company. It is issued by the registrar of companies and has to be issued prior to the company’s commencing trading.

Charging order

A court order under English law that is obtained by a creditor after judgement has been granted against a debtor who has failed to execute on the terms of a judgement. This order places restrictions on the disposal of certain assets (such as property) by the debtor and gives priority of payment over other creditors. In the US, a charging order refers to the statutory means by which a creditor can seek satisfaction of its claim from a partner’s interest in the partnership.

Chapter 7 Bankruptcy

The most common form of bankruptcy in the US, this is a liquidation proceeding available to individuals, married couples, partnerships, and corporations. The debtor who goes through a Chapter 7 Bankruptcy usually comes out the other end discharged of all debts.

Chapter 11 Bankruptcy

A reorganization proceeding in the US where an insolvent debtor, or a debtor threatened by insolvency, may continue in business or in possession of their property as a fiduciary. A confirmed Chapter 11 plan provides for the way in which the claims of creditors will be paid, in whole or in part, by the debtor.

Chapter 12 Bankruptcy

A simplified debt-payment relief plan in the US, designed for family farmers with a regular income whose debts fall within certain limits.

Chapter 13 Bankruptcy

A repayment plan in the US for individuals with debts falling below statutory levels. It provides for repayment of some or all of the debts out of future income for over 3 to 5 years. A repayment plan executed through Chapter 13 is also known as a wage earner’s plan, a wage earner plan, or an income-based plan.

Charge-off

When a credit grantor writes off an account in their books as unlikely to be collected, this is known as a charge-off. The creditor closes the account, which cannot be used thereafter, despite the debt being due and despite the debtor still having to meet its payment obligations. As the debt is still legally valid, the creditor has the right to collect the full amount owed within the time limit set down in the statute of limitations.

Civil action

An official complaint made by a person or legal entity (the plaintiff/claimant) in a court of law against another person or legal entity (the defendant). The presiding judge rules over the matter.

Civil Debt (Procedures) Act, 2015

This piece of legislation was enacted to enable the enforcement of judgments regarding certain types of debt in Ireland. The Act also effectively abolishes the imprisonment of debtors in Ireland for non-payment of debt.

Claim amount

The sum owed and payable by a debtor.

Claim

A claim is a term used in Australia for a legal document a claimant/plaintiff initiates when commencing legal action against a defendant. It is used in the lower courts in Australia for amounts less than AUD$100,000.00. In different states the name may vary (e.g., statement of claim, minor case claim, general procedure claim).

Claimant

Term used in the lower courts in Australia to describe the party who initiates a legal action against another. In the higher courts, this party is referred to as the plaintiff. Generally, this term means anyone who formally asserts a right or demand.

Client Relationship Management (CRM)

An approach used to manage a company’s interaction and future relationship with its clients. It often involves using technology to organize, automate and synchronize sales, marketing, client service and technical support.

C.O.D

Cash on delivery.

Code of Civil Procedure Code 1908

The basic procedural law regulating procedure for initiating civil recovery proceedings against a person or a company in debt.

Collateral security

A form of secondary protection often required by a creditor to strengthen the creditor’s position and ensure that a loan is repaid.

Collection

The recovery of outstanding amounts owed by a debtor to a creditor.

Collection agency

An entity that specializes in debt collection. The majority of collection agencies operate as agents for the creditor, who has handed the debt over to the collection agent for collection. Collection agencies collect debts for a fee or percentage of the amount collected. Some agencies such as those that make up TCM Group’s global network collect debt in the amicable phase on a ‘No Win, No Fee’ basis.

Collection attorney

A legal practice that specializes in the collection of debts using the legal system to obtain repayment of the debt.

Collection productivity reports

The reports produced by a collection business to monitor the performance of their agents in the collection process. They are a tool used to measure and help management understand and improve the performance of their agents.

Collection screen

The collection screen displays the debtor’s details that have been provided by the client (e.g., debtors full name, home and work address, home and work telephone numbers, cellular phone number, amount of debt, nature of the debt, and passport/identity number). The debtor’s details are updated as and when contact is made by the collection agent with the debtor. These details are displayed on the collection agent’s computer monitor.

Collection workflow

The processes that are followed in mapping the collection of a default debt and that are designed to make the process more streamlined, consistent, efficient and effective.

Co-maker

The person or individuals who guarantee a financial commitment (i.e., repayment of a loan or payment of a cheque). The co-maker or co-makers are jointly and severally liable—together with the person who initiated the financial commitment—for honouring the commitment in full.

Commercial collections

Debt collection from a commercial business.

Companies Act

A short title used to describe legislation in the UK, South Africa, India and Malaysia. Companies Acts in these countries prescribe the regulatory mechanisms covering all relevant aspects of a company, including its organizational, financial and managerial functions. As of 2016, winding up matters largely fall within the jurisdiction of the High Courts in these countries.

Company number

The unique number linked to a company when it is registered with the relevant authority. Also known as company index number, company registration number, and corporate identity number.

Competition and Markets Authority (CMA)

A UK government department (non-ministerial) responsible for strengthening competition between businesses and for preventing and curbing behaviour that restricts competition. It took over many of the responsibilities of the now defunct Competition Commission and Office of Fair Trading. The CMA began operating fully on 1 April 2014.

Composition

Mutual settlement or agreement.

Compound interest

Interest added not only to the principal amount but also to the interest already added to the loan or account (i.e., interest paid on interest).

Compulsory liquidation

An insolvency procedure that applies to companies and partnerships and is initiated by a court order.

Conditions of sale

The conditions that govern the sale contract between parties to the exclusion of any other terms of the buyer. Conditions of sale apply regardless of any specific conditions that may appear on the purchase order or other documents of the buyer.

Consortium

When two or more individuals, companies or organizations associate with one another with the aim of engaging in common activities and sharing resources, this is generally called a consortium. TCM is one of the world’s biggest global debt collection and credit management consortiums.

Consumer debt collections

Collection of outstanding debt from individuals.

Consumer Credit Act (CCA)

An Act of Parliament in the UK that reformed the law on consumer credit within the UK.

Consumer Credit Association (CCA)

The trade association for the home credit industry in the UK and Republic of Ireland, promoting high standards of business and consumer relations.

Consumer credit counselling services

Independent providers across the world offer these services to help individuals solve their financial problems. From starting a budget to educational programs on money management, counsellors discuss individuals’ entire financial situation and assist in developing personalized plans. Organizations offering such services are very often non-for profit organizations.

Consumer Credit Protection Act (CCPA)

A federal statute enacted in the US in 1968 to help ensure its citizens receive fair and honest credit services. The Act standardized practices across the country to make sure lenders followed the same sets of regulations—for example, after the Act was ratified, lenders were, and still are, required to give a full disclosure of the terms of the loan agreement.

Consumer Credit Trade Association (CCTA)

An association established in the UK in 1891 to promote integrity and fair practice in the credit industry. CCTA Membership represents all businesses involved in the consumer credit industry. Their services include legal advice, complaint conciliation, and credit agreements with full compliance.

Consumer Financial Protection Bureau (CFPB)

An independent federal agency that oversees consumer protection in the financial sector. Its sphere of authority is broad and includes the activities of debt collectors, banks, and security firms, to name a few.

Consumer Leasing Act (CLA)

US Act governing leases for non-commercial purposes and whose duration is longer than four months. Under this law, the lessor must make lease costs and terms known to the lessee. The lessee is also protected from extortionate penalties on payment defaults.

Contingency collection

Collections conducted on a contingency basis means that the collection agency retains a percentage of the amount collected. If the collection agency does not collect any money from the debtor, it is not compensated for work done.

Contractual interest rate

The interest rate set down in a promissory note or negotiable instrument. The contractual interest rate is typically a fixed rate, which means that it doesn’t change while the note or negotiable instrument is in force.

Controlling interest

When one shareholder holds a high enough percentage of ownership in a company to enact changes at the highest level. This figure is normally 50% of the outstanding shares or voting shares plus one share.

Co-signer / guarantor

A person who agrees to guarantee payment of another person’s debt. If that person fails to pay the debt, the co-signer/guarantor will pay on behalf of that person.

Council for Debt Collectors

Governmental department in South Africa set up to regulate the profession of debt collector in accordance with terms laid down in the Debt Collectors Act. It keeps watch over the conduct, practices, and fee structures of South African debt collectors in an effort to ensure good governance in the profession and fairness for both debtors and creditors.

County Court

A court in England and Wales that deals with civil matters such as businesses seeking to recover smaller claims of up to £10,000. Whether they win or lose, parties to a small claims action in a County Court are usually not in a position to recoup their legal costs after a judgement has been handed down. Many choose not to enlist legal representation as a result.

County Court Judgments (CCJs)

Legal decisions in England and Wales passed by County Courts. To appraise the creditworthiness of individuals, credit agencies make frequent reference to the Register of Judgements, Orders and Fines, which is a statutory record of judgements handed down on monetary claims.

Court docket

The official summary of court proceedings. In the US, court dockets count as public records and may be accessed by the public for a fee.

Court fees

Mandatory fees payable by affixing judicial stamps on petitions, applications, and various kinds of documents before they are filed in a court. It is only in legal aid matters that the petitioners are exempt from paying these fees.

Corporate debt restructuring

A procedure that allows a private or public company suffering from financial distress to reduce and renegotiate its delinquent debts. This is done in order to improve or restore liquidity so that the company can continue its day-to-day operations.

Creditor

The person or entity to whom a debtor owes money or to whom it has some other form of legal obligation.

Credit insurance

A borrower may decide to take out credit insurance, which is a type of life insurance in that it covers the value of outstanding debts should death, disability, or unemployment occur.

Credit limit

The upper limit of credit provided to a debtor by a lender for a specified line of credit.

Credit Rating Agency (CRA)

A company that sets credit ratings that measure 1) a debtor’s ability to meet its payment obligations and 2) the probability of payment failure. The service provided by such agencies is often referred to as a ratings service.

Credit reference

Information such as an individual’s or entity’s name that can give further information on the individual’s or entity’s ability to meet their payment obligations.

Credit report

Credit bureaus generate credit reports on an individual’s credit history. These reports typically include information on where the individual lives, whether and how the person meets his/her payment obligations, and whether he/she has been sued or has filed for bankruptcy. This information is generally used by creditors, insurers, and employers to evaluate an individual’s application for credit, insurance, or employment.

Credit scoring

Creditors use this instrument to make an objective measurement of the risk involved in issuing credit. The criteria used in the scoring process are determined by the creditor. Credit scoring optimizes response times and issuance procedures in granting credit.

Creditworthiness

The assessment of an individual’s or entity’s current and future ability and inclination to honour debt obligations as agreed upon. It is usually based on the credit history, credit rating, and the character of the individual/entity.

Current asset

An item on a company’s balance sheet that is cash or the equivalent of cash or that can be converted into cash within one year.

Current liabilities

Items on a company’s balance sheet account that represent debt obligations due within one year. Examples include accounts payable, short-term debt, and accrued liability.

Current ratio

A ratio that indicates a company’s ability to honour its current liabilities with the value of its current assets. It serves as a measure of a company’s liquidity. Current ratio = current assets / current liabilities.

Cut-off score

The credit score that marks the cut-off point on loan qualification.

D

Dasti Notice

A notice served under Indian law on the respondent (the party against whom a petition has been filed). ‘Dasti’ denotes ‘by hand’ in Persian and indicates that the notice has to be delivered in person to the respondent. It is implemented as a means of curtailing waiting times and can only be served through issuance of a court order.

Date of status

Reflected on a credit report as the date the creditor last reported information on the account.

Date opened

Reflected on a credit report and indicates the date an account was opened.

Debenture

A debt instrument issued at a fixed interest rate and secured only by the debtor’s reputation for honouring its payment obligations (i.e., by its creditworthiness), not by collateral or a lien on assets. The debtor in this case is typically a large company or a government that is seeking to raise capital over the long term at a low price. The term is used in some jurisdictions to mean note, bond, or loan stock. Debentures may be convertible (i.e., it may be converted into some other form of security, such as stock) or non-convertible (i.e., no such conversion into some other security is possible).

Debt buyer

A company or individual that purchases a debt from a credit grantor normally at a discount to the debt’s face value as it is deemed uncollectable in the eyes of the credit grantor.

Debt Collectors Act 114 of 1998

A law passed in South Africa to control the profession of debt collectors and to legalize the recovery of fees that may be charged to a debtor, based on a scale of tariffs.

Debt collection agency

A company that collects unpaid debts from debtors on behalf of the credit grantor as their agent, on a ‘no pay, no fee’ basis. In some cases, debt collection agencies are also debt buyers and would then collect such debts for their own accounts.

Decree

Traditionally, the adjudication of a court of equity, but also of probate courts and admiralty courts. A decree establishes beyond doubt the rights of the parties with respect to the bone of contention in the lawsuit.

Decree holder

 

Delinquent

Used to describe a payment obligation that has not been performed (i.e., past due). Classifications of delinquency commonly range from 30 to 120 days past due and may include charge-off and repossession, among others.

Demand letter

The letter a debt collection agency will send to a debtor requesting repayment of the outstanding debt. Also known as a letter of demand (LOD) or dunning letter.

Denial of discharge

Under US law, a debtor is denied discharge of its debts if the debtor is not an individual and has been found to behave in a manner that does not align with the conduct of “an honest but unfortunate debtor”. The grounds for denial of discharge listed in the legislation are numerous and include such misconduct as the use of a false claim, making a false oath, fraudulent use of recorded information, and fraudulent use of money or property. The denial of a debtor’s discharge does not obstruct the administration of the case. In other words, the trustee will proceed to liquate the debtor’s assets, including those assets typically exempt from liquidation, and the debtor will no longer be able to discharge its debts in any subsequent bankruptcy

Director’s guarantee

A written guarantee given by a company director that states that he/she promises to answer personally for any debts accrued or not met by his/her company. Such guarantees are usually implemented by small-scale companies or when the company’s assets are limited.

Discharge

The clearance of pre-bankruptcy debt through a bankruptcy judgement. The debtor may be released from financial obligations upon such an adjudication, but liens securing the debt may outlive the bankruptcy judgement.

Disclosure

The act of making something known to the public. Under section 603 of the US Fair Credit Reporting Act, credit bureaus are required to provide annual disclosures of their report files to any consumer who requires such information.

Dishonoured cheque

A cheque that is not paid by the bank, usually because there are insufficient funds in the account to honour the cheque.

Discretionary limit

A discretionary limit in credit insurance is the restriction on business that can be carried out with a buyer without the insurer’s official approval. Credit references that meet the insurer’s requirements must be supplied to the insurer.

Dismissal

The termination of an action or claim that neither acknowledges the debtor’s release from monetary obligations nor repudiates this release. Both debtor and creditor are furnished with the same rights as they enjoyed before the commencement of the bankruptcy case after a dismissal has been handed down.

Dispute

A consumer has the right to contest the accuracy of a statement on his/her credit report. It is the job of debt collection networks such as TCM to investigate the validity of such questionable items on behalf of its clients.

Distressed debts

A term used to describe an inactive, terminated, cancelled, non-performing or written-off debt.

District Court

Within the Australian state legal system the District Court is situated between the lower Magistrates’ Court and the higher Supreme Court. The District Court handles claims from $75,000 (or $100,000 in some states) to $750,000.

Dividend

A pro rata percentage of a company’s earnings distributed to its shareholders, typically in cash form or as additional shares or property.

Document of title

In the usual run of business a document of title authorizes the holder to receive, hold, and dispose of the document and the goods covered thereunder. Examples include bills of lading, delivery orders, and warehouse receipts. In the US, these are regulated by Article 7 of the UCC.

Dormant company

Generally speaking, this is a company that does not have any notable transactions on its books and whose reason for existing is to shore up a future project or look after an asset.

D.S.O.

Daily Sales Outstanding.

Due from group companies

Payments expected with the next year on short-term loans to group companies.

Dunning letter

A written notification sent to a customer stating that the customer’s payments are overdue. Also known as a demand letter, letter of demand, or LBA (Letter Before Action).

E

Early Out or Precollect Programmes

A programme developed by collection agents who, under the powers of the programme, act as the billing agent for their client. The programme can reduce internal costs while maintaining the client relationship.

Earnings report/statement

An important indicator of a public company’s financial health, used to show investors the viability of their investment.

Electronic funds transfer (EFT)

The electronic transfer of funds between bank accounts effected through a computer-based system. The transfer can take place within one financial organization or among multiple financial organizations.

Electronic Funds Transfer Act (EFTA)

A federal law in the US introduced to guarantee consumers’ rights and liabilities and to clarify the obligations of all parties to an electronic funds transfer.

Enforcement

The act of compelling adherence to a law, regulation, or obligation; bringing an executive or judicial order into effect.

Equal Credit Opportunity Act (ECOA)

A US federal law that forbids discrimination against credit seekers on the basis of sex, marital status, race, colour, religion, age, or receipt of public assistance.

Execution costs

Once a judgement has been obtained against a debtor, the creditor can immediately apply for a writ of execution against the debtor’s property in order to cover the amount of the debt.

EU Directive 2011/7/EU

A European Union directive on commercial late payments that applies to all member states as of 16 March 2013. By obliging debtors to pay interest on debts incurred and getting them to shoulder reasonable recovery costs, it aims to bring about a significant change towards valuing swift payment. There is a 60-day payment limit for businesses; for public authorities the limit is 30 days.

F

Factoring

A common way for a business to meet its liquidity needs by selling its accounts receivables to a third party.

Fair Credit & Charge Card Disclosure Act

US federal legislation obliging financial institutions to reveal the costs entailed in the credit card plans they offer.

Fair Credit Billing Act (FCBA)

US federal legislation designed to protect credit card holders from paying erroneous invoices by means of a specific error resolution procedure.

Fair Credit Reporting Act (FCRA)

US Federal legislation that regulates the behaviour of credit reporting agencies.

Fair debt collection

All debt collection agents formulate ethical guidelines on how they can operate. TCM ensures that its guidelines will always correspond to the rule of law at national and international levels, representing what is fair and reasonable in dealing with people and companies who have fallen behind in the repayment of their outstanding debts.

Fair Debt Collection Practices Act (FDCPA)

Federal legislation in the US forbidding ruthless and unjust debt collection practices.

Federal Circuit Court

The Federal Circuit Court is the Federal Court in Australia. Australia has two legal systems, State and Federal, and both deal with different areas of law. The Federal Circuit Court includes family law, child support, administrative law, admiralty law, bankruptcy, copyright, human rights, industrial law, migration, privacy, and trade practices.

Federal Family Education Loan Program (FFEL)

Financed through a public/private alliance, the FFEL was established by the Higher Education Act of 1965. It ranks second in the US in terms of the size of higher education loan programmes.

Filing fee

Term used in Australia to describe the fee the courts charge when initiating a legal action. Other fees include service fee and travelling fee (for serving the document).

Final demand letter

The last letter a debt collection agency in Australia will send to a debtor before initiating legal proceedings.

Firm

Also known as a business.

Fixed assets

In contrast to liquid assets, fixed or tangible assets are acquired for use over a long period of time and cannot be readily converted into cash. Common examples include equipment and real estate.

Fixed charge

An instrument securing a debt by the debtor’s fixed assets – for example, a lien on the debtor’s land or property until the debt has been honoured.

Fixture

Personal property that is affixed to land or a building and is considered to be part of the real property (e.g., a fireplace).

Floating charge

An instrument (e.g., lien or mortgage) on an asset with variable quantity or value to ensure a borrower honours its loan repayments. The floating charge crystallizes into a fixed charge when the borrower defaults on its loan repayments. Up until this time, the borrower can utilize the asset in question as usual.

Folio

A Land Registry document detailing, among other things, a piece of land or property, its ownership, and any charges on the property. Each Folio comes with its own Folio number (e.g., 123456F County Dublin).

Furniture, fixtures and equipment (FFE)

Accounting term used to denote movable items with no permanent attachment to the real property (e.g., any item of furniture or electronic equipment).

G

Garnishee order

An order carried out by an Australian court requiring the employer to deduct a certain amount from an employee’s wages and give this money to a creditor. This method of enforcement is frequently used by the Australian Taxation Office.

Garnishment

A legal course of action in which a court orders a third party, known as the garnishee, to transfer the debtor’s property (e.g, wages) held by that third party to the creditor.

Gearing

Typically expressed as a company’s debt-to-equity ratio and measured as a percentage. Gearing is hence an indication of the company’s financial leverage and financial health and is used as such by investors, lenders, and market analysts.

Generic scorecard

Generic scorecards are used when lack of data means it is impossible to generate a statistical scorecard. They are based on set criteria as opposed to statistics.

Grace period

The extra time given to a debtor to make a payment without its incurring penalty interest.

Gross profit

Arrived at by subtracting cost of sales from net sales.

Guarantee

A written assurance given by a person or entity that it will fulfil the contractual obligations of another person or entity should he/he/it default.

Guarantor

A person that is responsible for paying a bill if the debtor does not pay.

H

High balance

The highest balance a borrower has owed on an account. Credit card companies use this to calculate a person’s credit score.

Holding company

A company whose role is usually limited to the ownership of other companies’ stock and to presiding over the management of these companies. The control exercised by the holding company over other companies is secured by its controlling interest in those companies.

I

Identity Theft and Assumption Deterrence Act

Implemented under federal law in the US in October 1998, this act outlaws identity theft and grants victim status to the person suffering such theft. It is a crime punishable with up to 15 years imprisonment and a fine of $250,000.

Immovable/movable goods

Fixed property that cannot be moved is known as immovable. It is such an intrinsic aspect of the land that it is considered a part of it. By contrast, movable goods are those that can be displaced and are not considered to be an intrinsic aspect of the land. An example of the former would be a house, of the latter furniture.

Income statement

A business financial statement that lists revenue, expenses, and net income throughout a given period. Also known as earnings report, earnings statement, operating statement or profit and loss statement.

Indemnity of procedure

An agreement by a party or parties to be responsible for or to indemnify against the procedure to be followed in the terms of an agreement. The party agreeing to the indemnification is known as the “indemnifying party” while the other party acquiring indemnity is known as the “indemnified party”.

In-house collections

When an entity conducts its own debt collection using their own staff this is known as in-house collections and is in contrast to contingent debt collections where the collections are outsourced.

Injunction

A court order prescribing or impeding an action

Insolvency

The state of being unable to pay debts when they are due, or where a debtor’s liabilities surpass its assets.

Insolvency Practitioner (IP)

From negotiating with creditors in an attempt to salvage a business to taking control of a business before it is liquidated, an insolvency practitioner’s tasks are varied and complex. He/she is authorized to undertake these tasks in accordance with the statutory regulations of the relevant jurisdiction. A great many IPs have an accountancy background.

Insolvent

Not having enough money to pay one’s debts.

Instalment credit

The debt owed is broken up into increments and these are then paid at regular intervals, typically every month, into a credit account.

Institute of Mercantile Agents (IMA)

The IMA’s mandate is to represent the interests of, among others, debt collectors and investigators across Australia. It was established in 1961 and typically caters to smaller operators.

Intangible assets

Assets of an individual or company that cannot be touched (i.e., they are incorporeal), like patents, trademarks, and goodwill.

Interest Act

In general, the Interest Acts of jurisdictions the world over are designed to regulate the amount of interest charged on debts owed. The purpose of the 1975 South African Interest Act, for instance, is “to provide for the calculation of interest on a debt, in certain circumstances, at a prescribed rate”
(http://www.justice.gov.za/legislation/acts/1975-055.pdf)

Interest expense

A non-operating cost of a company indicating the amount of interest the company has incurred in consequence of money owed.

Interim order

An order issued by the court while waiting for a hearing or trial to commence or for one of the parties to do something.

Intermediate assets

Such assets are commonly treated as a type of fixed asset and may include a company’s 1) outlays in and outstanding payments from its subordinate companies and 2) its non-significant outlays in property.

Investigation

A credit reporting agency procedure that seeks to establish the validity of claims made in a specific credit report, claims with which a consumer has taken issue. The agency approaches the credit grantor, who is also the source of the information, and calls on it to appraise the validity of the consumer’s claims against the information in the report.

Investigative consumer reports

These are reports on sensitive information related to a person’s background, the person’s eligibility for access to specific information, and his/her credit history, lifestyle, and personality. Such reports are evidently more thorough than a credit report in that they strive to give an account of the intangible aspects of a person’s life.

Investments

Financial outlays on assets that are expected to produce income at a later date.

Involuntary bankruptcy

Banktruptcy proceedings initiated at the behest of creditors and then granted by the court. It is by no will of the debtor that these proceedings are set in motion.

Item-specific statement

A statement clarifying a trade or public record item in a person’s credit report.

J

Joint and several

In relation to a liability, responsibility, etc., this means that the parties to the agreement are both jointly and individually liable. If, for instance, all parties jointly owe a debt, a judgement may be enforced against all or only one.

Joint-stock company

A business entity in which there is joint ownership of the company’s stock by the company’s shareholders. The company’s shares can be bought and sold on the Stock Exchange.

Joint venture

A business cooperation undertaken by two or more parties who pool their resources into one common project. Such a venture is usually undertaken for the synergy – and hence enhanced profit-making capabilities – produced through combining specific areas of knowledge and expertise. Each member has an equal stake – and voice – in the development and outcome of the project. TCM Group is an example of the synergy produced by a global joint venture.

Judgment

The court’s final decision, executable under law, on the rights and obligations of the parties in a case. If entered against the debtor, the debtor shall be legally obliged to pay a debt and/or damages. The term “default judgment” is used when the plaintiff (claimant) obtains judgment by “default”, usually as a result of the defendant not doing anything.

Judgment creditor

A person legally entitled to enforce the execution of a judgement in the payment of a specified sum of money owed to the person.

Judgment debtor

A person against whom a judgement has been entered ordering the person to honour the payment of a specified sum of money.

L

Last reported

The date on which the creditor last entered information in the credit report on the status of the account.

Late Payment of Commercial Debts (Interest) Act 1998

This Act was introduced in the UK to enable businesses to charge other business customers interest on overdue accounts and to obtain compensation.

Law of Property Act (LPA) receiver

Under the 1925 Law of Property Act on conveyancing and property law in England and Wales, an LPA receiver can, among other things, request the payment of rent, take out insurance against damage or loss on a property, and, with the permission of the mortgagee, execute on all decisions related to the property.

Legal collections

The process of collecting outstanding debts through issuing a letter of demand, followed by issuing a summons, and then proceeding to judgment should payment not be honoured.

Legal entity

An entity that can sue or be sued in a court and that can make decisions through its representatives. Common examples are a company, partnership, or individual. Under Australian law, for instance, a trustee is considered to be a legal entity and can therefore be sued in a court of law. A trust, however, is considered to be a non-legal entity and cannot therefore be sued.

Letter outsourcing

Letter outsourcing is when a creditor outsources the posting of letters to a third party, with the intention of being more productive and saving money.

Leveraged buyout (LBO)

A buyout in which one company purchases a controlling share of another company using borrowed funds and its own assets and the assets of the acquired company as collateral for the loan.

Levy

A legally authorized seizure and sale of property to honour a debt. In the US, the Internal Revenue Services is sanctioned to levy an individual’s property (e.g., car, boat, or house) that is held by someone else.

Liability amount

The amount for which a debtor is legally obliged to a creditor.

Lien

Legal entitlement of a creditor to retain possession of another’s property until such time as the owner of the property has honoured a debt or satisfied a duty. One special type of lien is known as a “perfected lien” and entails a creditor obtaining a priority right to the debtor’s property as a way of protecting its interest from the interests of other creditors in the same property.

Limited company

A type of company in which the limit on members’ liability is determined by the amount each member has invested in the company. The liability may be limited by shares or by guarantee. Should the company be wound up, members either pay the outstanding amount on their shares or the amount each person agreed to pay on becoming a member, depending on the limitation.

Limited liability

The restriction of a shareholder’s liability in a limited company to the value of the shares held by that shareholder. In the event of a winding-up of the company, the shareholder is liable for outstanding amounts on shares held.

Limited liability company

A limited company.

Limited liability partnership

A partner in a limited liability partnership is not liable for an act of negligence perpetrated by another partner or an employee not working under the partner’s direction.

Line of credit (LOC)

The upper limit of credit a borrower can draw upon and on which the lender and borrower have entered into agreement.

Liquidation

The act of winding up a company to pay its outstanding debts. The cash raised through the conversion of the company’s assets is used to settle its debts.

Liquidator

The person responsible for winding up a company and settling its affairs. In many cases, this person is an insolvency practitioner (IP).

Liquidated claim

A claim made for an amount that has been agreed by the parties involved or that has been precisely determined by the operation of the law. This is the opposite of an unliquidated claim.

Liquidity

What is left when you subtract liquid liabilities from liquid assets.

Location number

The book and page number in the US court system on which the item is filed. In Ireland, this is known as a record number and is indicated by the year the proceedings were issued, followed by a unique set of numbers and letters, determined by the Irish Court.

London Gazette

An official British Government publication. It contains information on official government announcements, details of bankruptcy proceedings, dissolution of partnerships, winding-up orders against companies, notices under Section 652 of the Companies’ Act, voluntary liquidations, and so on.

Long firm

A term that describes a fraudulent organization whose sole purpose is to acquire goods on credit from its suppliers (by initially paying on time and establishing a reasonable basis for a credit arrangement) and then doing a runner with the goods thus obtained.

Long-term debt

Debt obligations whose maturity is longer than one year.

M

Magistrates Court

In many jurisdictions the lowest court where criminal cases are heard for the first time. Some civil matters such as family proceedings are also heard in the Magistrates Court.

Master of the High Court

The Master of the High Court is a quasi-judicial officer who deals with procedural and other matters relating to collection cases that have been commenced in the High Court. The Master processes such cases before they progress to a full hearing before a judge.

Management Information Systems (MIS)

Systems that are designed to manage and process information to improve the efficiency and effectiveness of managerial decision-making.

Mediation

The process of conflict resolution involving a mediator (a neutral third party) whose task is to bring resolution to a dispute between two or more parties. The mediator generally tries to reach an agreement that is mutually beneficial for the disputants

Mercantile industry

A term used in Australia to describe anyone involved in the debt collection industry. The term includes debt collectors, process servers, investigators, and re-possessors, but does not include lawyers.

Minority interest

A significant but non-controlling ownership of less than 50% of a company’s voting shares.

Mortgage Identification Number (MIN)

A homeowner’s MIN is evidence that his/her mortgage has been officially entered into the Mortgage Electronic Registration Systems Inc. The number is active for the duration of the mortgage.

N

National Change of Address (NCOALink)

Maintained by the United States Postal Service (USPS), this is an official record of the names and addresses of individuals, businesses, and families who have registered a permanent change of address with the USPS.

National Credit Act (NCA)

A law passed in South Africa to protect consumers in the credit market and to make credit and banking services more accessible to the public at large.

Net income (NI)

A company’s bottom line. It is arrived at by subtracting the sum of business expenses and tax from total revenue. NI is an important measure of a company’s long-term profitability.

Net worth

The simple formula for net worth is total assets – total liabilities = net worth. It is essentially what is left over when a company subtracts its debts from the value of everything it owns. Like net income, net worth gives an indication of the financial robustness of a company.

Nominal capital

Also known as authorized (share) capital, authorized stock, nominal share capital, or registered capital, nominal capital is the upper-limit of the value of a company’s shares as specified in the company’s memorandum of association.

Notice of results

When information on an individual is updated or deleted in a credit bureau’s system, the individual may request that the bureau send the corrected information in the individual’s credit history to eligible credit grantors and employers who will review the information within a specific period of time.

Novation

An agreement in which a contract binding two parties is extinguished and replaced by a new contract binding either the original contractors anew or one of the original contractors to a third party.

O

Obsolescence

In the field of credit management and debt collection, obsolescence means the length of time information on a lender’s negative credit history should remain on record before it becomes obsolete or irrelevant. After the information becomes obsolete, it no longer serves as a basis to adjudicate on the lender’s creditworthiness. In bankruptcy cases, the Fair Credit Reporting Act (FCRA) stipulates an obsolescence period of 10 years; for all other cases, the FCRA stipulates a period of 7 years.

Official Liquidator

An official liquidator is attached to the High Court and performs all functions in compliance with the order passed by the High Court. In the case of companies in liquidation as well as in winding up proceedings, he/she carries out all duties in accordance with the procedures laid down in the Companies Act.

Official receiver (OR)

In the UK, an employee of the Insolvency Service who, when it comes to the lawful execution of a court order, is answerable to the court to which he/she is attached. The responsibilities of an OR are numerous and include acting as interim receiver or provisional liquidator, or as the court-appointed receiver, liquidator, or trustee.

Onerous property

Property that is burdensome (i.e., hard or impossible to convert to cash) in a liquidation or bankruptcy case and thus a likely source of ongoing liability. The term also covers contracts that have stopped yielding a financial gain. A liquidator or trustee has the right to issue a disclaimer in respect of such property.

Operating agency (OA)

Under India’s 1985 Sick Industrial Companies Act, “operating agency” was defined as “any public financial institution, State level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the Board” (The Sick Industrial Companies Act, 85, Universal Law Publishing Company, Google books, page 4). The Act was later repealed and replaced by the 2003 Sick Industrial Companies Act. Broadly speaking, the aim of both Acts is to curb industrial sickness and to ensure ailing companies meet their legal obligations.

Operating income

Also known as earnings before interest and taxes (EBIT), “operating profit”, or “recurring profit”. It is calculated by deducting operating expenses from gross profit and is one of the most important indicators of a company’s performance and efficiency.

Operating statement

One of the key financial statements a company publishes to summarize its finances, an operating statement is also known as profit and loss statement, earnings report, earnings statement, or income statement. It shows a company’s net income or “bottom line”, which is arrived at by deducting expenses from revenue.

Ordinary shares

Generally ordinary shares, or common shares, carry no fixed rate of dividend and entitle their owners to one vote per share. On liquidation of a company, owners of ordinary shares receive distributions after bondholders or owners of preferred shares.

Original amount

The sum of money originally owed to a creditor.

Other current assets

A generic category of current assets that does not include such items as cash and securities. Examples are accounts receivable, bills of exchange, and advance payments to employees and suppliers. They must be cash-convertible within one year or one business cycle.

Other current liabilities

A balance sheet item that serves to group minor current liabilities not generally categorized under common current liabilities. Examples include hire purchase agreements and proposed dividends.

Other income

Income other than that generated from trading activities. Also know as investment income.

P

Parent company

A company that has a controlling interest in a subsidiary company, usually by owning more than 50% of the subsidiary company’s voting stock. A commonly acknowledged difference between a parent company and a holding company is that the former exists in its own right, whereas the latter was formed solely for the purpose of owning other companies.

Partnership

A venture in which two or more people join together to engage in some form of common business activity.

Payee

The person who is to receive the stated amount of money on a cheque, bill of exchange, or promissory note.

Payment processing

The process and service that automates payment transactions between shoppers and merchants. Third parties usually provide this service by using computer processes and secure Internet connections as the basis for their payment infrastructure, a significant part of which is the verification of card transactions.

Payment status

Refers to the status of a payment. There are numerous payment statuses such as cancelled, cleared, completed, denied, declined, failed, paid, refunded, and returned.

Payor

The person who makes a payment to another. The person who pays.

Permissible purposes

A number of legitimate or permissible purposes exist under law for the issuance of a credit report to a third party. These include, among others, employment purposes, court orders, and credit transactions.

Personal information

Information on an individual’s credit report concerning, among other things, the individual and their creditors. Personal information items may include age, alternative names, contact details (e.g., address and telephone numbers), marital status, employer’s name and contact details, and a list of the person’s creditors.

Personal statement

An individual can choose to add a general explanation about the information on his/her credit report. This personal statement remains on the report for two years and is displayed to anyone who reviews the individual’s credit information.

Petition

In general legal terms a petition is a formal written application to a court for the execution of some judicial procedure. In bankruptcy matters, a petition is the application to the court that triggers the bankruptcy case.

Phoenix activity

A method used by debtors in Australia to evade honouring their debt obligations. A director will de-register his company without paying any outstanding debts and at the same time create another company with a similar name and then continue trading as if nothing has happened. The sole purpose of this practice is to avoid paying creditors. Phoenix activity is a major issue in Australia, where it is rampant, and the Australian Security and Investments Commission (ASIC), the government body responsible for combating such illicit debt evasion practices, does very little.

Phoenix company

A company that rises out of the ashes of another so the company can avoid honouring its debts. This company will have a similar name to the first and will continue trading as if nothing has happened.

Plaintiff

The party who initiates a legal action against another (defendant) in a court of law.

Portfolio management

The management of a portfolio with a view to maximizing the return on that portfolio. Portfolio management typically involves complex decision-making processes on a wide range of investment factors, the foremost of which is offsetting the client’s investment needs against a reasonable level of investment risk.

Potentially negative items

Credit files may be flagged as potentially negative when such items as late payments and overdrawn credit limits appear on the file. Creditors often look to the status of potentially negative items on an individual’s file to appraise the person’s creditworthiness.

Power of attorney

A legal instrument giving one party the authority to act as another’s proxy in specified matters.

Pre-charge-off collections

When a creditor gives the debtor notice that the account is in default and will be sent to collections if a payment agreement is not made by a specific date.

Predictive dialler

An outbound telephone dialling system that automatically dials telephone numbers from a list of telephone numbers.

Preference

The act of an insolvent debtor transferring assets to one or more creditors such that the transfer constitutes a full payment of the existing debt. Depending on the law of the country, preferences may be deemed unfair, and hence voidable, if the liquidator or trustee can demonstrate that the debtor was indeed insolvent, that one creditor obtained an advantage over another as a result of the payment, and that the debtor went bankrupt within a certain time period after the completion of the transfer.

Preference shares

Also known as preferred stock, these are equity shares that normally carry a fixed dividend that is issued prior to the dividends on ordinary shares. Many types of preference shares exist, including non-cumulative preferred shares, cumulative preferred shares, and convertible preferred shares. Preference shares are generally non-voting shares, which means that their owners do not have a voice in any of the elective processes at shareholder meetings.

Preferential creditor

A creditor that, under applicable insolvency laws, receives preferential rights to payment upon the debtor’s bankruptcy.

Prepaid expenses

Items that are paid in advance, like rates, rent, and insurance premiums.

Primary collections

An authoritative source of data, and is modified by the user.

Private company

A company not listed on the stock exchange and that has been established by and is made up of private individuals

Process server

A term used in Australia to describe a person who serves legal documents. This occupation is regulated at state level with different laws in each state determining whether a licence is required. Solicitors will often enlist the services of specialized process-serving businesses or of debt collection agencies that already have a network of process servers in place.

Profit (loss)

The positive difference between the amount earned and the amount spent by a company. Loss is the negative difference between earnings and outgoings.

Profit and loss statement

A business financial statement that lists revenue, expenses, and net income throughout a given period. Also known as earnings report, earnings statement, operating statement, or income statement.

Profit margin

The measurement of trading success and is the calculation of profit as a ratio to net sales.

Pro forma

A term from Latin for “for form” or “as a matter of form” and used in accountancy to describe financial statements that do not contain extraordinary items. The term also describes invoices issued ahead of time to describe items or show charges. In the debt collection industry, pro forma can mean a reminder of an outstanding debt obligation.

Pro forma respondent

A party named as a respondent as a matter of formality. No relief is sought against such a respondent.

Proof of debt

A written document confirming an outstanding debt. This document must include specific information on the obligor (i.e., the debtor) and obligee (i.e., the creditor) and any documents that verify the debt. These verification documents should also be attached to the proof of debt.

Property Registration Authority (PRA)/ Registry of Deeds

Ireland’s official government agency for managing and controlling the registration of interests in real estate in Ireland.

Proxy

The written authorization to act in place of another or on behalf of another.

Public limited company

A common term in the UK and commonwealth countries for a company that is registered under the Companies Act as a public company, that has offered shares and securities to the public, and that has limited liability.

Public record information

Information acquired from lawful sources (e.g., Register of County Court Judgements) on matters related to business.

Public record data

Credit report data on tax liens, lawsuits, and judgements relevant to a person’s outstanding debts.

Q

Quick assets

Cash assets or readily liquidable assets.

Quick ratio

Otherwise referred to as the acid test ratio, the quick ratio is a popular way among investors and creditors to find out how quickly a company can honour its short-term debt obligations. To arrive at the figure, a company’s cash, short-term investments, and accounts receivable are added together and the sum is divided by current liabilities.

R

Reaffirming debt

A debtor may need to reaffirm an asset such as a car through the bankruptcy court. This signals that the debtor wants to continue making payments on the account and to continue being the owner of the asset.

Receivables

As the word suggests, receivables are what a company expects to receive in the form of monetary obligations owed. These include any outstanding debts or incomplete transactions and are entered into the company’s balance sheet. TCM’s soft approach to receivables management and debt collection is at the heart of the network’s 25-year success story: we capitalize on your obligor’s willingness to pay while doing everything within the power of the law to make sure your money is returned to you.

Receiver

An impartial person generally appointed by a court to protect or collect the assets to which several creditors have a claim.

Receivership

When a company has entered into the control of a receiver, it is said to be in receivership. In this state, the receiver is endowed with powers once held by the owners and directors of the company.

Redlining

The discriminatory practice of denying credit and other financial services on the basis of the ethnic and racial make-up of a particular postal code. The practice was outlawed in the US under the Fair Housing Act of 1968.

Registered capital

Another term for authorized share capital, this means the maximum amount of shares a company can issue. The amount is set down in the company’s memorandum of association and may be changed at a later stage with shareholders’ consent.

Registered company

A company that has been entered into the official records of the Registrar of Companies (in the UK) or of the Securities and Exchange Commission (in the US).

Registered office

A company’s official address. It is required by law for the receipt of all forms of official correspondence.

Relief from stay

A creditor can file a motion with the court to continue collecting from the debtor during the bankruptcy proceedings. If the court decides in the creditor’s favour, the creditor receives “relief from” the automatic stay.

Remittance statement

That part of a letter, issued by the payor, indicating that payment or payments are being made. This statement confirms receipt of the service providor’s invoice and payment of the sum or sums owed. It includes such information as invoice number, statement date, and balance status.

Repossession

The act of a creditor seizing property that a borrower gave as collateral on a loan, usually in consequence of the borrower repeatedly defaulting on loan repayments.

Request an investigation

Should you doubt the correctness of any part of your credit bureau report, TCM will—at no cost to you—make contact with the entity responsible for the report, request an investigation, and send you on the results within a specified period of time.

Rescission

The undoing of a contract by one party with legal grounds to do so – for example, as a result of the other party’s breaching the contract.

Reservation of title

A clause entitling the seller to retain ownership of goods sold, or the income generated therefrom, so long as the goods have not been paid for in full. Also known as a retention of title (ROT) or Romalpa clause.

Reserves

The net value of a company over and above the value of stocks or bonds issued by the company.

Respondent

A party against whom a motion is filed.

Responsibility

An identification of the responsible party or parties (e.g., parties that are singly or jointly responsible).

Retained earnings

Retained earnings represent the percentage of a company’s net income that is not paid out to shareholders in the form of dividends but is reinvested in the company. Also known as the retention ratio or retained surplus.

Retained earnings at end

Retained earnings entered into the current year’s balance sheet.

Retention of title (ROT) clause

See “reservation of title”.

Return of allotments

A way of increasing the number of shares a company has between one annual return and the next. In making one of these, the company discloses the number of shares allotted and the names and addresses of the prospective shareholders.

Revaluation reserve

A line item entered on a company’s balance sheet after it finds that the current value of an asset is higher that its book value. It is calculated as the difference between these two values.

Revolving account

Credit up to a predefined limit and whose availability is dependent on the customer’s making periodic payments.

Right-party contact (RPC)

The person with decision-making powers and named as the “right-party” to contact in relation to your business interest.

Rights issue

An effective way for a company to raise capital by giving its shareholders the opportunity to purchase new company shares at a price below the current trading price.

Risk scoring models

An instrument used by creditors to gauge a consumer’s future ability to make payments.

Romalpa clause

See “Reservation of title”.

Rule of 78

A method of adding the digits of a loan’s payment period together to calculate interest on the principal over a year. The weighting of interest paid is larger for earlier payments that for payments towards the end of the loan period.

S

Secondary collections

Debts that a primary collection company has tried to collect on the creditor’s behalf. The client enlists the services of a secondary collection agency as a check and balance on the primary agency’s collection efforts.

Secured charges

Charges that are secured against a company’s asset(s). They must be registered with the Companies Registry to clarify prior claims in the event of liquidation.

Secured creditor

A creditor whose claim to a debtor’s asset is secured. The asset serves as security for the debt owed in the event of the debtor’s insolvency.

Secured credit

A creditor who has granted a loan that has some form of acceptable collateral, such as a house or an automobile.

Security

Collateral guaranteed by the borrower to assure the creditor that the debt will be repaid. The creditor may take possession of the asset thus pledged in the event of debtor insolvency.

Selling expenses

The incurrence of any costs related to sales. They are included as a separate item on an income statement.

Setoff

When the debtor exercises its right to reduce the debt owed to the creditor by the amount the creditor is indebted to the debtor, this is known as setting off. It also means the defendant’s counterclaim to the plaintiff’s claim.

Shares

A unit of proprietorship of a company that entitles the holder to a proportionate percentage of the company’s profits and to a proportionate obligation for the company’s debts. They may be broadly divided into ordinary and preference shares, depending on whether the holder receives dividends as the company earns them and is entitled to a vote at shareholder meetings (the former) or whether the holder is not entitled to vote but to fixed dividends issued periodically (the latter).

Share premium

A designation for the surplus amount a company receives for its shares above the nominal or par value of those shares. A share premium account typically appears as an item on a company’s balance sheet.

Shell company

This is another term for a dormant company – in other words, a company that has yet to commence trading or has stopped trading outright. Such a company is registered with Company’s House (or its equivalent), but its accounts reveal no significant business transactions.

Sheriff

A court official entrusted with the responsibility of, among other things, managing the bailiff network.

Simple interest

A way of determining interest on a loan and is calculated by multiplying I (the interest rate) by P (the principal or loan amount) by N (the number of days between payments). It does not include interest on interest.

Skip tracer

A person who engages in the activity of locating another person’s whereabouts as a profession.

Skip tracing

The process of locating a person.

Slump sale

A slump sale occurs when a business, or part of a business, changes hands for a lump sum. A requirement of such a sale is that the assets transferred must not be assigned a value.

Sole proprietorship

A form of business in which one person shoulders all of the liability and takes all the profits of the business. Liability in this case is unlimited, which means that the owner’s private property may be used to offset debts incurred.

Sole trader/proprietor

An individual who runs a business on their own and not as a registered company. Also known as a sole proprietor.

Start-up scorecard

A non-statistical scorecard typically used when a statistical card is ruled out because of a lack of data.

Statement of affairs

A statement issued by the debtor during bankruptcy proceedings. It itemizes information relevant to the debtor’s assets and liabilities.

Statute of limitations

A statute setting a limit on the time within which a case can be brought to court. Also known as periods of prescription.

Statutory company

In contrast to a joint-stock-company or a chartered company, a statutory company has been established by a special statute. It typically serves the public and is accountable to parliament and the greater public.

Statutory demand

A formal written request in the UK from a creditor to a debtor requesting that a debt must be paid. The person or company receiving the statutory demand has 21 days to 1) settle the debt or 2) secure the debt by reaching a payment agreement. If the debtor wants to ask the court to set aside the demand, this must be done within 18 days of the date the statutory demand was served. If the debt is over £1750, then the creditor may present a petition to the court for a bankruptcy order or a winding up order.

Statutory interest

The interest that can be charged if another business is late in paying for goods or services and on condition that a different rate of interest is not stipulated in a contract.

Stock and work in progress

The current estimated value of stock after allowing for any deduction in respect of obsolete stock and the directors assessment of the value of work in progress.

Stubbs Gazette

A weekly publication that lists all registered judgments for any given week in Ireland.

Subpoena

A court-issued document requiring an individual or company to give evidence by either attending court or submitting documents. It comes from the Latin for “under penalty”.

Subrogation

When one party replaces another and by doing so 1) shoulders the original party’s debts and obligations and 2) is granted that party’s rights and remedies.

Subsidiary

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

Substituted Service

When a legal document is unable to be served (usually because the defendant is avoiding service), the plaintiff (or claimant) can apply to the court to effect service another way, usually by post, by placing the documents in the letterbox, or by taping the document to the door.

Summons/writ of summons

Legal document used in Australia to initiate legal action against a defendant. While it varies from state to state, a writ of summons is only used for amounts between $75,000 to $100,000 in debt.

Supreme Court

The highest court in a country. It deals with both criminal and civil matters.

Substituted Service

When legal proceedings cannot be served in accordance with judicial procedures, the creditor can apply to the court by way of ‘ex parte’ application to serve those proceedings by some other means (e.g., as ordinary prepaid post). Ex parte here means done for the benefit of one party only.

T

Take over

An acquiring company attempts to obtain control of a target company, either in a friendly or hostile fashion. This is typically done by purchasing a majority stake in the target company.

Technically insolvent

A company is considered technically insolvent when it can still continue its business despite the excess of liabilities over assets. Depending of the gravity of the negative asset value, the situation may or may not be a cause for concern.

Telephone Consumer Protection Act (TCPA)

Introduced in 1991, the TCPA protects consumers from unwanted commercial solicitation via the telephone (e.g., via autodialed calls) and stipulates that unequivocal consent needs to be obtained before such calls can be made.

Terms

The stipulations of a debtor’s repayment agreement, defining for instance the time period within which the debt will be paid.

Terms and conditions

Also known as conditions of sale or terms of trade, these set forth the provisions upon which the contract between buyer and seller is based.

Third party collector

Collectors working for a collection agency that collects debt on behalf of a creditor.

Third party debt order

A legal process to recover money owed to the debtor by a third party.

Total assets

All current and fixed assets taken together.

Trade line (also tradeline)

A trade line is any credit-related issue recorded in a consumer’s credit account. A significant source of information for credit reporting agencies, trade lines include such items as payment status and loan type.

Trade creditors & accruals

Outstanding amounts a company has yet to pay for goods or services that it has purchased.

Trading address

The address of a company. This is where it carries out its business and where its assets are likely to be found.

TransUnion CIBL Limited

The first credit information company in India, it collects data on individuals’ credit history.

Treble damages

Under this US law, the court is authorized to award damages to the plaintiff three times the amount determined by the jury or fact-finder. The court may exercise its right to do this if it discovers that the defendant wilfully violated anti-trust laws, for instance

Trust account

A bank account that allows the user to deposit money on behalf of other people or businesses. In most countries, such accounts are mandatory for all debt collection agencies and are audited by government agencies.

Trustee

A person or entity charged by the court with all manner of duties pertaining to a bankruptcy estate. Foremost among these are collecting cash, liquidating assets, and evaluating the debtor’s finances.

Truth in Lending Act

In the US, under the Truth in Lending Act, consumer lenders are obliged to disclose the cost of credit and consumers are endowed with rights that protect their property against liens.

U

Uncalled capital

Capital in the form of shares that a company has issued but has yet to receive full payment for.

Undischarged bankrupt

A person who is going through bankruptcy proceedings and who has not been released from the obligation to pay the debt. Restrictions such as those on borrowing, conducting business, and holding directorial positions will be placed on this type of bankrupt.

Unlimited liability

The liability of an owner or owners of a business for all of the debt the business has run up. This type of liability is unlimited because it extends to the private assets of the owner(s), which may be liquidated to honour financial obligations

Unliquidated claim

A claim in which the amount owed cannot be determined and therefore must be decided by a magistrate in a court of law. A typical example would be in the area of compensation.

Unsecured creditor

A non-preferential creditor—that is, one with no security interests (e.g., a lien or a mortgage) in the assets of the debtor.

Unsecured credit

Another term for uncollatoralized credit, unsecured credit is what an unsecured creditor has made available.

V

Vacant repossession

Term used in Australia to describe the process of a financial institution taking possession of an unoccupied or vacant property. In Australia, if a bank has security over a property (mortgage) and the debtor defaults on payments and vacates the property, the financial institution can take vacant repossession of the property for liquidation purposes.

Verification

To show the truth of. Also to validate the truth of statements under oath.

Victim statement

If a consumer’s identification has been used illicitly to gain access to credit, a victim statement can be added to their credit report to notify creditors of the infraction.

Void

Absolute nullity in legal terms; no legal validity.

Voidable

Capable of being rendered void.

Voluntary bankruptcy

A consumer who files for bankruptcy on their own is known as having applied for voluntary bankruptcy.

W

Wage assignment

When the debtor voluntary agrees to transfer part of his/her wages to the creditor.

Wage garnishment

The transfer by court order of the debtor’s wages to the creditor so long as the debt remains unpaid.

Waiver

The act of abandoning a legal right. A waiver can be express (i.e., by unequivocal declaration) or implied (i.e., unequivocal conduct).

Warrant

A legal process that entails the seizure of goods or land to pay a debt. An example would be a land warrant.

Warranty

The promise made in contractual terms by the seller to the buyer that the thing being sold is as the seller represents it to be. A warranty often stipulates the rights and obligations of the parties to the contract in the event of a claim or a dispute.

Winding up order

A court order mandating the winding up of a company and the assignment of a liquidation to do so.

Winding up petition

A formal written request submitted to the court by a person or entity seeking the winding up of a company.

Working capital

The excess of current assets over current liabilities. It is used to fund the day-to-day running of a business.

Writ

A judicial document ordering an individual to do or desist from doing something.

Write-off rate

The ratio of written-off debt expressed as a percentage of total loans during the period.

Z

Z-scoring

Edward Altman’s probabilistic model, which uses the sum of a number of business ratios for forecasting a company’s likely or unlikely demise.


Primary author

Neal O Donoghue

Secondary author

TCM Group International