Receivables glossary

Accounts receivable glossary

Plain definitions of accounts receivable, credit and collections terms, with worked examples and the UK, US and EU rules where they apply.

Invoices and receivables Trade credit and financing Collections Metrics and ratios

Invoices and receivables

What customers owe you, the documents that show it and how incoming payments get matched to invoices.

Accounts receivable

Accounts receivable (AR) is the money customers owe a business for goods or services it has delivered and invoiced but not yet been paid for. In UK accounts the same balance is called trade receivables or trade debtors.

Accounts receivable aging report

An accounts receivable aging report lists your unpaid customer invoices and groups them by how many days they are past due, usually current, 1 to 30, 31 to 60, 61 to 90 and over 90 days. It shows who owes you money and how late each balance is.

Allowance for doubtful accounts

The allowance for doubtful accounts is a contra-asset account that reduces accounts receivable to the amount a business expects to collect. In the UK it is often called a bad debt provision or a provision for doubtful debts.

Bad debt expense

Bad debt expense is the cost a business records in profit or loss for credit sales it does not expect to collect. Under US GAAP and IFRS it is the amount needed to bring the allowance for doubtful accounts to the current estimate of losses.

Order to cash (O2C)

Order to cash (O2C) is the process that runs from receiving a customer's order to collecting the payment and recording it in your books. It covers order entry, credit checks, delivery, invoicing, collections and cash application.

Overdue invoice

An overdue invoice is an invoice the customer has not paid by its due date. It becomes overdue, also called past due, on the day after the payment deadline set by the invoice terms or the contract.

Remittance advice

A remittance advice is a note a customer sends to a supplier to say that a payment has been made and which invoices it covers. It helps the supplier match the money to the right invoices.

Statement of account

A statement of account is a summary a supplier sends to a customer listing invoices, payments and credit notes over a period, with the balance the customer still owes. It is also called a customer statement.

Unapplied cash

Unapplied cash is a customer payment you have received and recorded but not yet matched to the specific invoices it pays. Until it is applied, those invoices still look open in your receivables, although the money is already in your account.

Trade credit and financing

Who buys from you on credit, on what terms and up to what limit, and how you keep those decisions under control.

Credit control

Credit control is the process a business uses to decide which customers can buy on credit, on what terms and up to what limit, and to make sure they pay on time. In the UK the person who runs it is usually called a credit controller.

Customer credit limit

A customer credit limit is the highest balance a business customer may owe you at any one time for goods or services bought on credit terms. The supplier sets it as part of trade credit, so it is not the same as a credit card limit.

Early payment discount

An early payment discount is a reduction a seller offers if the customer pays an invoice within a set period before the due date, written in terms such as 2/10 net 30. It is also called a cash discount, or a settlement or prompt payment discount in the UK.

Invoice factoring

Invoice factoring is a way to raise cash from unpaid invoices by selling them to a factor, a finance company that pays you most of their value upfront and the rest, minus its fees, once your customers pay.

Payment terms

Payment terms are the agreed conditions for when and how a customer must pay a seller's invoice, such as net 30, due on receipt or 30 days end of month. They fix the due date and can include early payment discounts and charges for late payment.

Collections

The letters and steps that take an unpaid invoice from the first reminder to a final demand.

Dunning letter

A dunning letter is a written reminder that a customer has not paid an invoice, sent as one step in a sequence that gets firmer the longer the debt stays unpaid. It is also called a dunning notice.

Late payment compensation

Late payment compensation is a fixed sum a business can claim from another business that pays late, on top of interest, to cover the cost of chasing the debt. In the UK it is £40, £70 or £100, and EU law sets a minimum of €40.

Letter before action

A letter before action is a formal demand that sets out what you are owed and warns that you will start court proceedings unless the debtor pays or replies by a deadline. In England and Wales it is also called a letter before claim or letter of claim.

Metrics and ratios

The numbers that show how long customers take to pay and how much of the money due your team collects.