Accounts receivable and collections glossary

A credit note cancels or reduces an invoice you already issued, for example after an error, a return or an agreed discount.

A debit note adds to an amount already invoiced, or asks a supplier for a credit. Which one depends on who issues it.

A deposit invoice asks for part of the price up front, before work starts, to secure the booking and reduce the supplier’s risk.

The due date is the last day an invoice can be paid on time. Once it passes, the invoice is overdue.

E-invoicing means sending invoices as structured data a buyer’s system reads automatically, not as PDFs. Several EU countries now require it for B2B.

An invoice is a dated, numbered request for payment that records what was supplied, the amount owed and when it is due.

The invoice date is the date an invoice is issued. Payment terms usually count from it, so it decides when the invoice falls due.

An invoice dispute is a customer’s challenge to all or part of an invoice. Until it is resolved, the disputed amount is unlikely to be paid.

An invoice number is the unique reference that identifies one invoice, so supplier and customer can find, match and chase it without confusion.

An open item is an invoice, credit or payment on a customer account that hasn’t yet been fully matched or settled.

An overpayment is a customer payment larger than the amount owed, leaving a credit on their account to refund or apply.

A partial payment settles only part of an invoice. The rest stays open and keeps ageing from the original due date.

A pro forma invoice is a preliminary bill sent before work or delivery, showing what will be charged. It is a quote in invoice form, not a demand for payment.

Progress billing means invoicing a project in stages as work is completed, instead of one invoice at the end.

A purchase order is the buyer’s document authorising a purchase. Many companies won’t pay an invoice that doesn’t quote a valid PO number.

A recurring invoice bills the same customer the same amount on a fixed schedule, such as a monthly retainer or subscription.

A remittance advice is a note from a customer listing which invoices a payment covers, so the supplier can match the money correctly.

A retainer is a fee a client pays in advance or on a fixed schedule to secure a supplier’s time or availability.

A short payment is when a customer pays less than the invoiced amount, often because of a deduction, a dispute or bank charges.

A statement of account lists a customer’s invoices, payments and credits over a period and shows the balance they owe.

A three-way match is an accounts-payable check that pays an invoice only when it agrees with the purchase order and the record of what was received.

Unapplied cash is money received from customers that hasn’t yet been matched to the invoices it pays.

Software that handles invoicing follow-up, reminders and payment matching.

A bad debt is an amount owed to you that you no longer expect to collect, and that is written off as a loss.

Cash application is matching each incoming customer payment to the invoices it pays, so those invoices close and the customer’s balance is right.

A collection agency is a firm that pursues unpaid debts for a creditor, usually for a percentage of what it recovers.

Collections escalation is the step-by-step increase in pressure on an unpaid invoice, from friendly reminders up to agencies and court.

A county court judgment (CCJ) is a court order in England and Wales to pay a debt. Unpaid, it goes on a public register for six years.

A doubtful debt is a receivable that may not be collected. It stays on the books, but a provision is set aside against the risk of losing it.

The structured sequence of reminders a supplier sends as an invoice becomes more overdue.

The European order for payment is an EU procedure for collecting uncontested cross-border money claims using standard forms, with no upper value limit.

The European Small Claims Procedure is a written EU court process for cross-border claims up to €5,000, with a judgment enforceable across the EU.

First-party collections means chasing overdue invoices in the supplier’s own name, by its own team or a service working under its brand.

The last formal demand before legal proceedings, setting a final deadline to pay.

An overdue invoice is one that is still unpaid after its due date. Being one day past due is enough; how late it is decides what happens next.

A payment plan lets a customer settle an overdue balance in agreed instalments over time, instead of all at once.

A message asking a customer to pay an invoice that is due or overdue. Templates by stage.

A promise to pay is a customer’s commitment to pay a specific amount by a specific date, recorded so it can be checked and followed up.

Small claims court is a simplified court process for low-value debts, designed so a business can bring a claim without a lawyer.

A statutory demand is a formal demand for an undisputed debt in England and Wales. An unpaid one can lead to a winding-up petition against a company.

Third-party collections means an outside agency or law firm pursues a debt in its own name, after the supplier has handed the account over.

A write-off removes an uncollectable invoice from accounts receivable and records the amount as a loss.

A business credit score is a rating from a credit reference agency that summarises how likely a company is to pay its debts on time.

A credit application is the form a new customer completes to request payment terms, giving the details needed to assess and set up the account.

A business credit check reviews a company’s credit report and payment history before you give it credit terms.

The process of giving credit to customers and making sure they pay on time.

A credit hold stops new orders or work for a customer until an overdue balance is paid or brought back within its credit limit.

A credit limit is the maximum amount a customer may owe you at one time. New work beyond it waits until the balance comes down.

Credit risk is the chance that a customer pays late or never pays for what you have already delivered.

A personal guarantee is a promise by an individual, usually a director or owner, to pay a company’s debt personally if the company doesn’t.

Trade credit is when a supplier lets a business customer pay after delivery, on agreed terms such as net 30, instead of up front.

Trade credit insurance pays a supplier most of an invoice’s value if a customer fails to pay because of insolvency or long-term default.

A trade reference is another supplier who can confirm how a prospective customer pays its bills: on time, late, or not at all.

An ACH transfer is a US bank-to-bank payment through the Automated Clearing House network, the usual way businesses pay invoices electronically in the US.

Bacs is the UK payment system for Direct Debits and bulk Direct Credits, which clears payments over three working days.

CHAPS is the UK’s same-day payment system for high-value transfers, run by the Bank of England, with no upper limit on amount.

A direct debit lets a supplier take payment directly from a customer’s bank account under an authorisation (mandate) the customer has signed.

Faster Payments is the UK system for near-instant bank transfers, available 24 hours a day, every day of the year.

An IBAN is a standard international bank account number of up to 34 characters, required for euro payments across SEPA.

Invoice fraud is when criminals pose as a supplier and trick a customer into paying a genuine invoice into the fraudster’s bank account.

A lockbox is a bank service that receives a company’s mailed check payments, deposits them and sends the payment data back for matching.

A payment link is a URL on an invoice or reminder that takes the customer straight to a page where they can pay, by card or bank.

A payment reference is the text a customer adds to a bank transfer to say what it pays. The invoice number is the best one to ask for.

A SEPA credit transfer is a euro bank transfer between accounts anywhere in the Single Euro Payments Area, credited by the next business day.

SEPA Direct Debit lets a supplier collect euro payments from a customer’s account under a signed mandate. Core and B2B schemes give payers different rights.

SEPA Instant is a euro transfer that reaches the recipient within 10 seconds, at any hour. EU banks must offer it at no extra cost.

A standing order is an instruction a customer gives their own bank to pay a fixed amount to you on a regular schedule.

A SWIFT or BIC code is the 8- or 11-character identifier of a bank, used to route international payments to the right institution.

Verification of payee checks that the name on a bank transfer matches the account holder before money is sent, to stop fraud and errors.

A wire transfer is a bank-to-bank payment sent individually, typically same day domestically and through the SWIFT network internationally.

Fixed-sum compensation is the flat amount EU and UK law let a supplier claim per late B2B invoice: €40 in the EU, £40 to £100 in the UK.

A governing law clause states which country’s or state’s law applies to a contract, which decides the interest, fees and procedures you can rely on.

The UK statute giving suppliers interest at Bank Rate plus 8% and a fixed sum on late B2B invoices. Calculator.

The EU Late Payment Directive (2011/7/EU) gives B2B suppliers statutory interest, a €40 fixed sum and limits on payment terms when invoices are paid late.

The rate a US state applies to an overdue debt when the contract sets none. All 50 states.

A limitation period is the time limit for suing over an unpaid debt. After it ends, the claim usually can’t be enforced in court.

Liquidated damages are a sum fixed in a contract that one party pays the other for a specific breach, such as late delivery or late payment.

A pay-when-paid clause makes a contractor’s payment to a subcontractor depend on the contractor first being paid by its own client.

UK payment practices reporting requires large companies and LLPs to publish, every six months, how quickly they pay their suppliers.

Prejudgment interest is interest a court awards on a debt for the period between when it was due and when judgment is given.

The US Prompt Payment Act requires federal agencies to pay contractors on time, and to pay interest automatically when they pay late.

A retention of title clause keeps the supplier as legal owner of delivered goods until the customer pays for them in full.

The interest EU law adds to late B2B invoices: the reference rate plus at least 8 points. Rates for all 27 countries.

A usury law caps the interest rate that may be charged on a debt. In the US, each state sets its own ceiling and its own exemptions.