Glossary

Financial process automation is the use of technology to streamline financial processes.

An open invoice is simply an invoice sent to a customer that they have not yet paid

Proof of debt is needed when a customer owes you money and you may need to prove debt through the resolution process.

Collection risk refers to the possibility that you will not receive payment for goods or services you already provided or delivered.

Accounting score predicts the likelihood that a given customer will pay their bill on time

This process matches invoices to the corresponding payments received. Doing this ensures that all payments are accounted for and recorded correctly.

The fixed asset turnover ratio or FAT ratio measures how efficiently a company uses its fixed assets to generate revenue.

A long term liability is a debt or obligation that a company owes and will need to pay off over more than one year.

Uncollectible A/R are amounts of money that a business believes customers will not repay.

Invoice matching is the process of verifying that the invoice received from a supplier is accurate and corresponds to the purchase order placed by the buyer.

Businesses send invoice collection letters to remind customers of their past-due invoices and the need for prompt payment.

An overdue invoice occurs when a customer fails to pay his or her bill within the agreed-upon time frame.

The first collection letter is the start of a series of collection letters that business owners send to their clients.

Receivables are the debts owed to your company. If you’ve agreed to do business by producing goods or services and collecting payments at a later date, you have outstanding receivables until the debt has been paid. 

Accounts receivable risk management is the process of identifying, assessing, and managing the risks associated with accounts receivable

An account balance is the total amount of money in a bank account or general ledger account. Accountants or banks usually calculate this by taking the sum of all deposits and subtracting all withdrawals.

A write-off is an expense that a business can subtract from its taxable income or taxes. This reduces the amount of money it owes to tax agencies.

Accounts Receivable Risk Management is the process of identifying, assessing, and managing the risks associated with accounts receivable and extending credit to customers.

An overdue invoice occurs when a customer fails to pay his or her bill within the agreed-upon time frame.

A balance sheet is a financial statement that shows the assets, liabilities, and owner's equity of a business for a specific period.

An unapplied payment primarily refers to a payment that doesn’t have a matching invoice. In other instances, it might have a matching invoice but it hasn’t been settled.

A business’s credit score can range from 0 to 100. The higher the number, the greater the likelihood of a business paying its bills in full and on time. Vendors and lenders review this information to determine eligibility for loans and trade credit.

“Trade receivables” refers to the total amounts owed to your company for the products or services sold to customers, but for which you have not yet received payments.

If your business provides credit to customers, then you likely encountered a notes receivable before. This promissory note details payment for a loan within a certain time period at a specific interest rate.

POS is “point of sale.” The term does not specify the payment method but refers to electronic payments. In the past, this only included debit cards or credit cards.

An accounts receivable flow chart is the process by which your financial department sends invoices and collects money on a cycle.

Cash application is the process of matching incoming payments with client accounts, and more importantly, the correct invoice. 

Accounts Receivable (AR) measures the exact amount of money your clients owe for goods or services you’ve provided on credit.

These tools basically automate your accounts receivable collections process by giving your team new features and functions that streamline common AR processes:

B2B credit management is used by B2B accounts receivable teams to distinguish between collecting payments from businesses vs. collecting payments from consumers.

An early payment discount is an incentive creditors can provide for paying invoices ahead of schedule.

The cash flow cycle performance metric helps companies identify how long it takes to convert their inventories into cash. It measures this time in days.

Past due email notices are sent to clients to inform them of an unpaid invoice that has gone beyond the due date.

Payment facilitator services simplify options for processing payments. Most PayFac companies focus on electronic payments, but some have even facilitated options for accepting checks and cash during online purchases.

Invoice Management refers to the management of your own business invoices. This internal business function requires the finance team to process and pay incoming invoices while also aligning payments with available cash.

A duplicate payment occurs when an entity makes an extra payment in the same amount as the original. This is usually caused by an accounting error or processing glitch.

A collection policy is an official strategy your business uses to meet and exceed its accounts receivable goals. This written document includes clear and detailed guidelines identifying who to extend credit to, how much, and why.

B2B collection refers to the process of collecting unpaid invoices or other forms of corporate debt. This debt can be sold to special agencies or business owners could hire professionals to handle the task.

Account reconciliation is the process accountants use to confirm the accuracy of the general ledger or other financial documents. In some cases, accountants complete this at the end of an accounting period, such as during year-end tax filings.

Accounts correspondence also refers to the documentation of accounting transactions and resulting communications with clients and customers.

The corporate cash forecasting process involves reviewing financial documents and completing complex calculations to predict how much cash the business will have at a specific date.

Collections performance metrics refers to the group of calculations accountants use to monitor collection trends. By extension, these metrics also help managers determine how well accounts receivable teams carry out their jobs.

Business owners and accountants can use several metrics to determine how quickly customers are paying their bills. Collector efficiency refers to the success rate of collecting debts owed.

Average days delinquent (ADD) refers to the average number of days that pass between due dates for invoices and the receipt of payment. Accounts receivable teams use this metric to evaluate client accounts and analyze payment delinquency across several accounts.

Managers use receivable turnover to measure the effectiveness of their accounts receivable team and how well they collect on invoices owed. That, in turn, helps managers determine how well they manage their assets, which includes company inventory.

Days sales outstanding shows the average number of days it takes a business to convert a sale into cash. Managers usually calculate DSO on a timed schedule, such as annually, quarterly or monthly.

The accounts receivable aging report categorizes a company's accounts receivable according to the length of time an invoice has been outstanding. The table lists all current customers, their balances, and how they are categorized. Companies can then use this information to determine how to proceed with collecting debts and whether it’s worth pursuing.

A cash flow statement is a financial document illustrating how money moves into, through and out of a business. It shows how much cash the company has on hand to pay its financial obligations and how much it keeps in reserves.

Also known as a dunning letter, this refers to a message sent to encourage customers to pay. These messages generally start out neutral and friendly and then become sterner as time goes by. In the past, these messages took the form of actual letters, but modern businesses use many different forms:

An average receivables collection period refers to the typical time it takes for companies to receive invoice payments. More specifically, it describes the time that elapses between the sales date and the date the customer paid for the goods or services rendered.

The order-to-cash process refers to converting orders into cash payments for the business while fulfilling orders for customers. It is commonly abbreviated as “O2C” or “OTC” and covers the sales and fulfilment process from start to finish. While both B2C and B2B companies have an OTC process, it manifests differently.

Also known as accounts receivable representatives, these professionals dedicate their efforts to ensuring customers pay their invoices in full and on time. Collections professionals are responsible for making phone calls, sending emails and taking other steps to ensure customers make payments.

This type of loan allows business owners to pass the risk of payment on to another company. That creditor fronts the majority of the money owed so the business owner has cash in-hand to meet immediate obligations. The amount paid upfront depends on the industry and the risk associated with that industry.

Document management provides the perfect solution for properly storing and organizing all your accounts receivable documents. Companies today need software to streamline their accounts receivable process. This turns most documents into electronic copies that become far easier to sort.