A comprehensive A-Z glossary of invoicing, billing, and financial terms. Understand the language of business payments and accounting with clear, simple definitions.
No terms found matching your search. Try a different keyword.
Money a business owes to its suppliers or vendors for goods and services received but not yet paid for. Accounts payable appears as a current liability on the company's balance sheet and represents short-term debt obligations. Effective AP management ensures timely payments, maintains good vendor relationships, and optimizes cash flow.
Money owed to a business by its customers for goods or services that have been delivered or used but not yet paid for. Accounts receivable is recorded as a current asset on the balance sheet and is a key indicator of cash flow health. Monitoring AR aging helps businesses identify overdue payments and take timely collection action.
An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash is actually received or paid. This approach provides a more accurate picture of a company's financial position than cash-basis accounting. Most medium and large businesses use accrual accounting to comply with generally accepted accounting principles (GAAP).
The total outstanding amount that remains unpaid on an invoice after accounting for any partial payments, credits, or discounts applied. This is the final amount the customer must pay to settle the invoice in full. The balance due is typically prominently displayed on invoices to ensure clarity for both the sender and recipient.
A legal document issued by a carrier to a shipper that details the type, quantity, and destination of goods being transported. It serves as a receipt of shipment, a contract of carriage, and a document of title. Bills of lading are essential in international trade and freight shipping for tracking goods and resolving disputes.
The recurring time period between billing statements or invoices, such as monthly, quarterly, or annually. A billing cycle determines when charges are calculated, invoices are generated, and payments become due. Consistent billing cycles help businesses maintain predictable cash flow and give customers clear expectations for upcoming charges.
A document issued by a seller to a buyer reducing the amount owed on a previous invoice. Credit notes are typically issued for returned goods, billing errors, or agreed-upon discounts after the original invoice was sent. They serve as an official record of the reduction and are essential for accurate bookkeeping and tax reporting.
The direct costs attributable to the production of goods or services sold by a company, including materials, labor, and manufacturing overhead. COGS is subtracted from revenue to calculate gross profit. Understanding COGS is critical for pricing strategies, profitability analysis, and accurate financial reporting.
A document issued by a buyer to a seller indicating that the buyer is debiting the seller's account, often due to returned goods or an overcharge. It serves as a formal request for a credit note or refund. Debit notes are commonly used in business-to-business transactions to adjust amounts owed between parties.
A reduction in the standard price of a product or service, often offered as an incentive for early payment, bulk purchases, or customer loyalty. Common invoice discount terms include "2/10 Net 30," meaning a 2% discount is available if paid within 10 days, otherwise the full amount is due in 30 days. Discounts can significantly impact cash flow and should be factored into pricing strategies.
The date by which an invoice payment must be received to avoid being considered overdue or incurring late fees. Due dates are calculated based on the payment terms specified on the invoice (e.g., Net 30 means 30 days from the invoice date). Clearly stating the due date on every invoice helps reduce payment delays and disputes.
A preliminary document provided to a prospective client outlining the anticipated costs of a project, product, or service before work begins. Unlike an invoice, an estimate is not a demand for payment but rather a projection of expected costs. Estimates can be converted into invoices once the client approves the work and it is completed.
A detailed document submitted by employees or contractors listing business-related expenses incurred during a specific period. Expense reports typically include receipts and are used for reimbursement and tax deduction purposes. Proper expense reporting is essential for accurate financial records, budget management, and regulatory compliance.
A shipping term that indicates the point at which responsibility for goods transfers from the seller to the buyer. "FOB Origin" means the buyer assumes risk and freight costs once goods leave the seller's facility, while "FOB Destination" means the seller is responsible until goods reach the buyer. FOB terms are critical for determining who bears shipping costs and liability during transit.
The total amount on an invoice before any deductions such as taxes, discounts, or withholdings are applied. The gross amount represents the full value of goods or services provided. It is distinguished from the net amount, which is the final payable total after all adjustments have been made.
A commercial document issued by a seller to a buyer that itemizes products or services provided, their quantities, agreed prices, and payment terms. Invoices serve as a formal request for payment, a legal record of the transaction, and are essential for accounting and tax purposes. Every invoice should include a unique number, date, seller and buyer details, line items, and the total amount due.
A financial arrangement where a business sells its outstanding invoices to a third-party company (a factor) at a discount in exchange for immediate cash. The factor then collects payment from the customer directly. Invoice factoring helps businesses improve cash flow without waiting for customers to pay within standard payment terms.
An additional charge applied to an invoice when payment is not received by the specified due date. Late fees are typically expressed as a fixed amount or a percentage of the overdue balance (e.g., 1.5% per month). Including clear late fee terms on invoices encourages timely payment and compensates the seller for delayed cash flow.
An individual entry on an invoice that describes a specific product or service, including its description, quantity, unit price, and total cost. Each line item represents a distinct charge on the invoice. Detailed line items provide transparency, help clients understand exactly what they are being charged for, and reduce billing disputes.
Standard payment terms indicating the number of days a buyer has to pay an invoice in full from the invoice date. Net 30 means payment is due within 30 days, Net 60 within 60 days, and Net 90 within 90 days. Shorter payment terms improve cash flow for the seller, while longer terms give buyers more time to arrange payment and can be used as a competitive advantage.
The final payable amount on an invoice after all deductions, including discounts, taxes, credits, and withholdings, have been applied. The net amount is what the customer actually needs to pay. It is calculated by starting with the gross amount and subtracting any applicable adjustments.
An invoice status indicating that payment has not been received by the specified due date. Overdue invoices may incur late fees, interest charges, or trigger collection actions. Proactively following up on overdue invoices with payment reminders is essential for maintaining healthy cash flow and minimizing bad debt.
The conditions under which a seller expects to be paid by the buyer, including the timeframe for payment, accepted payment methods, early payment discounts, and late payment penalties. Common payment terms include Net 30, Due on Receipt, and 2/10 Net 30. Clearly defined payment terms on invoices help set expectations and reduce payment disputes.
A preliminary invoice sent to a buyer before goods are delivered or services are rendered, outlining the expected costs and terms of sale. Unlike a standard invoice, a proforma invoice is not a demand for payment but rather a good-faith estimate used for customs, financing, or approval purposes. Proforma invoices are commonly used in international trade to facilitate import/export documentation.
A billing method where charges are calculated proportionally based on actual usage or time rather than a full billing period. For example, if a customer subscribes to a monthly service mid-month, they are charged only for the remaining days. Prorated billing ensures fairness and accuracy, particularly for subscription-based services and partial-period charges.
A formal document issued by a buyer to a seller indicating the types, quantities, and agreed prices for products or services the buyer wishes to purchase. A purchase order becomes a legally binding contract once accepted by the seller. POs are used to control purchasing, track orders, and ensure both parties agree on terms before work begins.
A formal statement of the price and terms offered by a seller for specific goods or services, typically valid for a limited period. Unlike estimates, quotes are generally considered binding once accepted by the buyer. Quotes help establish agreed-upon pricing before work begins and can be converted into invoices upon project completion.
A written acknowledgment that payment has been received for goods or services. Unlike an invoice, which is a request for payment, a receipt confirms that the transaction is complete. Receipts are important for record-keeping, expense tracking, tax documentation, and resolving potential payment disputes.
An invoice that is automatically generated and sent to a client at regular intervals (weekly, monthly, quarterly, or annually) for ongoing services or subscriptions. Recurring invoices save time by eliminating the need to manually create repetitive billing documents. They are ideal for retainer agreements, subscription services, and any arrangement involving regular, predictable payments.
A portion of the total payment withheld by the client until a project is completed satisfactorily, commonly used in construction and large-scale projects. Typical retention rates range from 5% to 10% of the contract value. Retention ensures the contractor completes all work to the agreed standard before receiving full payment and is released upon final acceptance of the project.
A comprehensive document summarizing all transactions between a seller and buyer over a specified period, including invoices issued, payments received, credits applied, and the current balance owed. Statements of account are typically sent periodically to help clients reconcile their records. They are not invoices themselves but serve as a useful reminder of outstanding balances.
The sum of all line item amounts on an invoice before taxes, shipping, discounts, or other adjustments are applied. The subtotal gives clients a clear view of the base cost of goods or services provided. It is the starting point from which the final total (including tax and fees) is calculated.
An invoice that includes specific tax information required by tax authorities, such as the tax identification number of both parties, applicable tax rates, and the tax amount charged. Tax invoices are mandatory in many countries for businesses registered for VAT or GST. They enable buyers to claim input tax credits and are essential for compliance with tax regulations.
The contractual provisions that govern the sale of goods or services, often printed on or attached to invoices. These may include payment terms, warranties, liability limitations, dispute resolution procedures, and return policies. Clear terms and conditions protect both parties and reduce the risk of misunderstandings or legal disputes.
A consumption tax levied on goods and services at each stage of the supply chain where value is added. VAT is used in the EU, UK, and many other countries, while GST is the equivalent in Australia, Canada, India, and other regions. Businesses registered for VAT/GST must charge tax on their sales, file regular returns, and can claim back tax paid on business purchases (input tax credits).
The accounting process of removing an uncollectible invoice or debt from the books when it is determined that the amount owed will never be paid. Write-offs reduce accounts receivable and are recorded as a bad debt expense. Businesses typically write off invoices after exhausting all reasonable collection efforts and may claim the loss as a tax deduction.
A tax deducted at source by the payer before remitting payment to the payee, then paid directly to the government on behalf of the payee. Withholding tax is common in cross-border transactions and freelance/contractor payments. The withheld amount is typically credited against the payee's overall tax liability when filing their annual tax return.
Now that you understand the terminology, put it into practice. Create and send professional invoices with SendBill.net in under 2 minutes.