Glossary
Receivables, defined.
The terms that come up when you are trying to get paid, in plain English, with the formulas where there are formulas.
A
- Accessorial charges(accessorials, detention, layover, TONU)
- Accessorial charges are freight fees beyond the base line-haul rate for extra services or delays: detention (waiting beyond free time), layover, truck ordered not used, lumper fees, redelivery, and similar.
- Accounts payable(AP)
- Accounts payable (AP) is the money a business owes its suppliers for goods or services received but not yet paid for; your invoice is a line in your customer's AP.
- Accounts receivable(AR, receivables)
- Accounts receivable (AR) is the money customers owe a business for goods or services already delivered and invoiced but not yet paid.
- Allowance for doubtful accounts(bad debt reserve)
- The allowance for doubtful accounts is an estimate, recorded against receivables, of the portion of open invoices that will not be collected.
- AR aging report(accounts receivable aging, aged receivables)
- An AR aging report lists every unpaid invoice grouped by how long it has been outstanding, typically in buckets of current, 1 to 30, 31 to 60, 61 to 90, and over 90 days past due.
- AR automation(accounts receivable automation, collections automation)
- AR automation is software that performs receivables follow-up (reminders, escalation, reply handling) and reporting without a person doing each step by hand.
- Average days to pay(days to pay, collection speed)
- Average days to pay is the mean number of days between an invoice's issue date and the date it was paid, measured only on invoices that were actually paid.
C
- Cash application
- Cash application is the process of matching incoming payments to the specific open invoices they pay, so the customer's balance and the aging report are accurate.
- Cash conversion cycle(CCC)
- The cash conversion cycle is the number of days between paying for the inputs to a sale and collecting the cash from the customer.
- Collection effectiveness index(CEI)
- The collection effectiveness index (CEI) is the percentage of receivables that were available to collect in a period that a business actually collected.
- Collections agency(collection agency, commercial collections)
- A collections agency is a third party that pursues overdue invoices on a business's behalf, usually for a contingency fee of 25% to 50% of what it recovers.
- Contingency fee
- A contingency fee is a collections agency's charge taken as a percentage of the amount recovered, with nothing owed if nothing is recovered.
- Credit memo(credit note)
- A credit memo is a document that reduces the amount a customer owes on an invoice, issued to correct an error, resolve a dispute, or apply a return or discount.
D
- Days payable outstanding(DPO)
- Days payable outstanding (DPO) is the average number of days a business takes to pay its own suppliers.
- Days sales outstanding(DSO)
- Days sales outstanding (DSO) is the average number of days it takes a business to collect payment after issuing an invoice.
- Dunning(dunning process, dunning letters)
- Dunning is the sequence of increasingly firm communications a business sends to collect an overdue invoice, from a friendly reminder to a final notice.
E
- Early payment discount(2/10 net 30, prompt payment discount)
- An early payment discount is a small percentage taken off an invoice if the customer pays within a short window, typically 10 days.
- Escalation
- In collections, escalation is the step where follow-up on an overdue invoice moves to a firmer tone, a more senior contact on the customer side, or a stated consequence.
F
- Final notice(final demand, demand letter)
- A final notice is the last message in a dunning sequence, stating what will happen (a late fee, paused service, referral to collections) if payment is not received by a specific date.
G
- Grace period
- A grace period is a short window after an invoice's due date during which no reminder is sent, to allow for mail delays and payment runs already in progress.
I
- Invoice dispute
- An invoice dispute is a customer's objection to some or all of an invoice, usually about scope, amount, quality, timing, or paperwork.
- Invoice factoring(factoring, receivables financing)
- Invoice factoring is selling your open invoices to a third party (a factor) at a discount for immediate cash, with the factor collecting from your customers.
L
- Late fee(late payment penalty, finance charge)
- A late fee is a charge added to an invoice that is paid after its due date, usually a flat amount or a monthly percentage of the balance.
P
- Past due(overdue, delinquent)
- An invoice is past due (or overdue) once its due date has passed without full payment.
- Payment terms(net terms, net 30, net 60, net 90)
- Payment terms state when an invoice is due; net 30 means the full amount is due 30 days after the invoice date, net 60 and net 90 mean 60 and 90 days.
- Progress billing(milestone billing, percentage of completion)
- Progress billing invoices a customer in installments as work is completed, rather than in one invoice at the end.
- Promise to pay(PTP, payment commitment)
- A promise to pay is a customer's stated commitment to pay an invoice by a specific date.
- Purchase order(PO, PO number)
- A purchase order is the customer's document authorizing a purchase, and its number is what the customer's accounts payable system uses to match and approve your invoice.
R
- Remittance advice
- Remittance advice is the notice a customer sends with a payment listing which invoices the payment covers and any deductions taken.
- Retainage(retention, holdback)
- Retainage is a percentage of each progress payment (commonly 5% to 10%) that a customer withholds until a project is complete and accepted.
S
- Short pay(short payment, partial payment)
- A short pay is a payment for less than the invoiced amount, usually because the customer took a deduction, disputed a line item, or had a PO for a smaller amount.
W
- Working capital
- Working capital is current assets minus current liabilities: the cash and near-cash a business has to run day to day.
- Write-off(bad debt, bad debt expense)
- A write-off removes an uncollectible invoice from accounts receivable and records it as bad debt expense.
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