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Managing finances can be one of the toughest and most frustrating aspects of running a small business. There seems to be an endless number of acronyms and terms that define your financial situation and impact your day to day performance, and more often than not you’ll need the help of Google to decipher many of them.

We know that small business owners are always pushed for time too, so that’s why we’ve compiled an A-Z run-down of some of the most frequently used terms and phrases across the financial industry today to help. From balance sheets to letters of guarantee, take a look below and if you think there’s anything we’ve missed, feel free to let us know by dropping an email to us here!

Acid test

This test measures a company’s ability to pay its short-term debts. It looks at current assets (although not inventory/stock), which are items that can quickly be converted into cash. Also referred to as the Quick Ratio.


Administration order

This refers to a legal procedure which is designed to rescue insolvent companies, allowing them to continue running their business while being operated by an administrator.


This is a fixed amount of money paid to an individual each year. An example of this would be a contract sold by an insurance company, which provides payments to the holder at specified intervals, usually as a way of ensuring a steady cash flow during retirement.


This stands for ‘Annual Equivalent Rate’, and refers to the official interest rate for savings accounts, and allows you to compare products easily. It shows what you would get over a year if you put money into your account and left it there. The ‘gross rate’ is the interest actually paid.


Anti-Money Laundering and Countering the Financing of Terrorism.


This stands for ‘Annual Percentage Rate’ and refers to the overall cost of debt, i.e. the cost of the borrowing together with any associated fees, such as an arrangement fee. This varies between lenders.

The term was originally created by the banks. Although it’s widely recognised, Capify is unable to use it and that’s simply because our finance isn’t offered over an annual period. Instead, we charge a factor rate; a term exclusively used in business finance rather than commercial finance. The factor rate we offer is based on your individual businesses circumstances.


This is when money is not paid by its due date and is therefore owed.


Anything owned by the company which has a monetary value; e.g., ‘fixed’ assets like buildings, plant and machinery, vehicles (these are not assets if rented and not owned) and potentially including intangibles like trademarks and brand names, and ‘current’ assets, such as stock, debtors and cash.

Asset turnover

A measure of operational efficiency – shows how much revenue is produced per £ of assets available to the business.

If a company generates a high number of sales from their assets, then it has low asset turnover.


(Formerly Bankers’ Automated Clearing Services) This is the system allowing you to pay your bills and transfer money electronically, for example, direct debits.


This is the amount of money you have in your bank account at a given time, or alternatively, the amount you owe on your credit card. The bank or card provider will send you statements at regular intervals showing your current balance, or you can access this information if you have an online banking facility. 

Balance sheet

The Balance Sheet is one of the three essential measurement reports for the performance and health of a company, along with the Profit and Loss Account and the Cashflow Statement.

The Balance Sheet is a ‘snapshot’ in time of a company’s financial position. It shows what a company owns, and what they owe out. The three main elements of a balance sheet include Assets, Liabilities, and Owner’s/Shareholders Equity.

The equation is, Assets = Liabilities + Owner’s Equity.

For every change on one side of the balance sheet, there must be a corresponding change on the other side – it must always balance, hence the name.


In a financial planning context, the word budget means an amount of money that is planned to spend on a particular activity or resource. This is typically over a trading year, although budgets apply to shorter and longer periods, and may refer to costs allocated to projects of flexible timescales.

Business loan

A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest.

Capify offers small business loans, which are designed to provide much-needed working capital. Business loan customers repay on a little and often basis, usually daily or weekly to help with cash flow management. They don’t have to worry about a large monthly repayment on a fixed date each month.

Capify loans are available from £5,000 to over £500,000.

Capital employed

The value of all resources available to the company, typically including share capital, retained profits and reserves, long-term loans and deferred taxation.

Capital employed comprises fixed assets, investments and the net investment in working capital (current assets less current liabilities). In other words: the total long-term funds invested in or lent to the business and used by it to carry out operations.


The movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments.

Cashflow statement

The cashflow statement shows the movement and availability of cash through and to the business over a given period, certainly for a trading year, and often also monthly and cumulatively.

The availability of cash in a company is necessary to meet payments to suppliers, staff and other creditors, it’s essential for any business to survive. Therefore, reliable forecasting and reporting of cash movement and availability is crucial.


This stands for Clearing House Automated Payment System and is the automated system which you can use to make a same-day payment within the UK. There is normally a charge for using this service, so it is primarily used for high-value payments.

Compound interest

This is when you earn additional interest on interest. Referring to savings, this means that any interest you earn is added to your original deposit, and then this larger amount continues to earn you even more interest. If referring to a loan, it means you will be charged interest, not only on the amount borrowed but also on any interest outstanding at that point in time.

Cost of debt ratio

Despite the different variations used for this term (cost of debt, cost of debt ratio, average cost of debt ratio, etc) the term normally and simply refers to the interest expense over a given period as a percentage of the average outstanding debt over the same period, i.e., cost of interest divided by average outstanding debt.

Cost of goods sold (COGS)

The directly attributable costs of products or services sold, (usually materials, labour, and direct production costs). Sales less COGS = gross profit. Effectively the same as cost of sales (COS) see below for fuller explanation.

Cost of sales (COS)

Commonly arrived at via the formula: opening stock + stock purchased – closing stock.

Cost of sales is the value, at cost, of the goods or services sold during the period in question, usually the financial year, as shown in a Profit and Loss Account (P&L).


This term can be used in different ways. It can refer to money being paid into your account, or if your account is ‘in credit’, that the balance in your account is positive rather than negative. It can also refer to a contractual agreement in which you as the borrower receive money to pay for goods or services now and agree to repay the lender at a later date.


Client Relationship Manager.

Current assets

Cash and anything that is expected to be converted into cash within twelve months of the balance sheet date.

Current ratio

The relationship between current assets and current liabilities indicates the liquidity of a business, i.e. its ability to meet its short-term obligations. Also referred to as the Liquidity Ratio.

Current liabilities

Money owed by the business that is generally due for payment within 12 months of balance sheet date. Examples: creditors, bank overdraft, taxation.

Customer Due Diligence (CDD)

This refers to the steps a financial services business is required to carry out, in order to identify and verify the identity of the parties to a relationship, and to obtain information on the purpose and intended nature of each business relationship.


The distribution of the cost of a (usually large) capital item over an agreed period, (based on life expectancy or obsolescence), for example, a piece of equipment costing £10k having a life of five years might be depreciated over five years at a cost of £2k per year.


A dividend is a payment made per share, to a company’s shareholders by a company, based on the profits of the year, but not necessarily all of the profits, arrived at by the directors and voted at the company’s annual general meeting.

A company can choose to pay a dividend from reserves following a loss-making year, and conversely, a company can choose to pay no dividend after a profit-making year, depending on what is believed to be in the best interests of the company.


Earnings Before Taxes


Earnings Before Interest and Taxes


Earnings Before Interest after Taxes


Earnings Before Interest, Taxes and Depreciation


Earnings Before Interest, Taxes, Depreciation, and Amortization.

European Union Savings Directive (EUSD)

This has been in force in the UK since 1 July 2005, and its aim is to allow Member States of the European Union and certain other countries to collect and exchange information about payments of savings income in the form of interest.


Financial Conduct Authority (formerly FSA – Financial Services Authority).

Fixed assets

Assets used by the business rather than for sale or conversion into cash, e.g., fixtures and fittings, equipment, buildings.

Fixed cost

A cost which does not vary with changing sales or production volumes, e.g., building lease costs, permanent staff wages, rates, depreciation of capital items.

Financial Services Compensation Scheme (FSCS)

This is UK’s deposit compensation scheme, which can pay compensation to consumers if a financial services firm is unable, or is likely to be unable, to pay claims against it.

Fixed rate

This is where the interest rate and payment remain the same for the length of time you have a financial product, for example, a mortgage or loan. This will be agreed prior to signing up to the product.

Fixed term account

This is a deposit which is held at a financial institution for an agreed fixed term, ranging anywhere from say a month to several years. Because the term is fixed, you will only be able to withdraw your money after the term has ended, or by giving an agreed period of notice. Your bank may allow you to withdraw your money early, but each bank’s requirements will be different in this regard, and you are likely to incur a fee or penalty for doing so.

Forex / FX

Foreign Exchange.


The ratio of debt to equity, usually the relationship between long-term borrowings and shareholders’ funds.

Gross profit

Sales less cost of goods or services sold. Also referred to as gross profit margin, or gross profit, and often abbreviated to simply ‘margin’. See also ‘net profit’.


This is a person who guarantees to pay off another individual’s debt, should the borrower find that they cannot pay it.


HM Revenue and Customs – the UK’s tax authority.


International Bank Account Number.


This stands for ‘Independent Financial Adviser’.

Initial public offering (IPO)

An Initial Public Offering is the first sale of privately-owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions. In other words, an IPO is the first sale of stock by a private company to the public.


If you are saving money, this refers to the amount earned from the bank on your deposit. If you are borrowing money, this refers to the fee charged by the lender for the use of the money.

Interest rate

This is the percentage that is paid to you by the bank in interest on savings or the percentage you pay if you have taken out a loan. Unlike banks, Capify charges a fixed fee, which means no matter how much interest rates increase by, they never charge customers extra money on top of their contract.

International Money Order (IMO)

This is a written order for the payment of a sum of money to a named individual, which is usually issued and payable at a bank or post office.


This stands for ‘Individual Savings Account’. These are available to UK residents only and are a form of tax-free savings account.

Joint account

This is an account which you can open in the name of more than one person; usually a close relative or business partner. You will be asked to agree when opening the account whether each person is to be able to withdraw funds independently, or if they will require the consent of the other before doing so.

Know your customer (KYC)

This is the process by which a financial services business will verify the identity of its clients.

Letters of credit

These letters are used mainly by exporters and importers. Usually, the importing companies bank, will send a letter to the exporters bank in order to safeguard the contract. Typically, the letter will state that the seller will receive their money on time and for the correct amount.

A letter of credit is a guarantee from the issuing bank to the seller that if compliant documents are presented by the seller to the buyer’s bank, then the buyer’s bank will pay the seller the amount due.

Letters of guarantee

While a letter of credit essentially guarantees payment to the exporter, a letter of guarantee provides a safeguard that other aspects of the supplier’s or customer’s obligations will be met.

The supplier’s or customer’s bank is effectively giving a direct guarantee on behalf of the supplier or customer that the supplier’s or customer’s obligations will be met, and in the event of the supplier’s or customer’s failure to meet obligations to the other party then the bank undertakes the responsibility for those obligations.


General term for what the business owes. It’s usually an obligation between one person/business to another, to say that an amount of money is to be paid. There’s short term/current liabilities (will be paid within 12 months) and long term liabilities (will be paid back in more than 12 months).


This is when a company is brought to an end, either on a compulsory or voluntary basis.

Liquidity ratio

Indicates the company’s ability to pay its short-term debts, by measuring the relationship between current assets (i.e. those which can be turned into cash) against the short-term debt value. (current assets/current liabilities) Also referred to as the Current Ratio.


A sum of money which is borrowed for a set period of time, and which is paid back to the lender, together with an agreed amount of interest.

Merchant Cash Advance

A Merchant Cash Advance (or MCA), sometimes called a Business Cash Advance, is a short-term funding option which works with the seasonal flow of your business. It’s a fantastic option for businesses that accept credit and debit card payments from their customers.

Capify’s Merchant Cash Advance allows businesses to raise upwards of £3,500, with the daily repayments designed to not impact cash flow, making it a flexible finance option.

Net assets (also called total net assets)

Total assets (fixed and current) less current liabilities and long-term liabilities that have not been capitalised (e.g., short-term loans).

Net current assets

Current Assets less Current Liabilities.

Net present value (NPV)

NPV is essentially a measurement of all future cashflow (revenues minus costs, also referred to as net benefits) that will be derived from a particular investment (whether in the form of a project.

Net profit

Net profit normally refers to profit after deduction of all operating expenses, notably after deduction of fixed costs or fixed overheads. Net profit normally refers to the profit figure before deduction of corporation tax, in which case the term is often extended to ‘net profit before tax’ or PBT.


An expense that cannot be attributed to any one single part of the company’s activities.

Quick ratio

Same as the Acid Test. The relationship between current assets (stock isn’t included) readily convertible into cash and current liabilities. A sterner test of liquidity.


This is a process under which an application may be made to the Royal Court for a declaration of insolvency. The process has the potential for the debtor eventually to be discharged from his liabilities after the realisation and distribution of his assets.


Reserves are usually taken from a business’s profits and set aside for many different purposes; sometimes emergencies, but also to pay for bonuses, repairs and maintenance, new assets etc..

Restricted funds

These are funds used by an organisation that are restricted or earmarked by a donor for a specific purpose, which can be extremely specific or quite broad, e.g., endowment or pensions investment; research (in the case of donations to a charity or research organisation); or a particular project with agreed terms of reference and outputs such as to meet the criteria or terms of the donation or award or grant.

Return on capital employed (ROCE)

A fundamental financial performance measure. A percentage figure representing profit before interest against the money that is invested in the business. (profit before interest and tax, divided by capital employed, x 100 to produce percentage figure).

Return on investment (ROI)

Return on investment is a measurement which will show the amount gained or lost on an investment, in comparison to the amount which was invested.

This can be used as a fundamental financial and business performance measure.

Simple interest

In contrast to compound interest, simple interest is interest paid on the original deposit only.

Share capital

This is the money which is paid into the company by shareholders. In return for their investment, they’ll receive a share of the business.

Shareholders’ funds

Shareholders’ funds refer to the amount of equity in a company which is owned by the shareholders.

Variable cost

A cost which varies with sales or operational volumes, e.g. materials, fuel, commission payments.

Variable rate

This is where the interest rates and therefore payments on deposits or loans, such as mortgages, change as a result of external factors, for example, a change in the base rate set by the Bank of England.

Working capital

Working capital is the difference between current assets (cash, purchased stock) compared to current liabilities (the money owed out). This gives a short term indication about the financial health of a business.

In order to thrive and grow, a business should have significant working capital. This means that the amount owned, is more than the amount owed.

At Capify, we’ve been helping British small businesses grow for 10 years.

Our flexible finance can help small businesses invest in refurbishment, extra staff, stock levels, and time-saving technology; and now you know all the financial terminology, there’s nothing to stop you applying for one of our convenient and trusted products.

If you’re looking for short-term finance to fund the growth of your business, contact us today on 0800 151 0980 to find out how much your business could raise or get a online quote now.

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