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Accounts Receivable Glossary

Accounts Receivable Glossary

Welcome to our comprehensive accounts receivable glossary, a valuable resource designed for anyone looking to deepen their understanding of accounts receivable and related financial concepts. This glossary covers an extensive range of terms, from the most basic to more advanced topics, ensuring a thorough grasp of accounts receivable management and its critical role in business finance.

In this glossary, you will find terms organized alphabetically, making it easy to navigate and locate specific terminology.

Each term is concisely defined, with a focus on clarity. Whether you are reconciling accounts, exploring financial strategies, or managing cash flows, this glossary serves as a reliable reference point! If you'd like to know more about a term, you can always click on the link for a deeper understanding.

A

Accounting Cycle

The accounting cycle is the collective process of recording and processing all financial transactions of a company, from when the transaction occurs, to its inclusion in the financial statements. This cycle includes steps such as journalizing transactions, posting to the ledger, preparing trial balances, making adjusting entries, and closing the books. The cycle ends with the preparation of financial statements for the reporting period.

Accounting Reconciliation

Accounting reconciliation is comparing financial records and accounts to ensure accuracy and consistency. It involves identifying and correcting discrepancies between different data, such as bank statements and ledger accounts.

Accounting Software

Accounting software is a computer program used for managing financial transactions and accounts. It automates many accounting tasks, like ledger management, invoice creation, and reconciliation, to improve accuracy and efficiency.

Accounting Standards

Accounting Standards are authoritative standards for financial reporting and are a set of guidelines that govern how a company's financial transactions should be recorded and disclosed. These standards aim to ensure transparency, reliability, and consistency of financial statements across all businesses, facilitating comparability for investors, regulators, and other stakeholders.

Accounts Payable

Accounts payable is the amount a company owes to its suppliers or vendors for goods or services received but not yet paid for. It's a current liability on the balance sheet.

Accounts Receivable

Accounts receivable refers to the money owed to a company by its customers for goods or services delivered but not yet paid for. It's considered a current asset on the balance sheet.

Accounts Receivable Automation

Accounts receivable automation refers to the use of software to automate the processes of managing and collecting payments owed to a company, enhancing efficiency and accuracy.

Accounts Receivable Collections

Accounts receivable collections are the practices and procedures employed by a company to manage and collect funds owed by its customers, involving communication and negotiation strategies.

Accounts Receivable Management

Accounts Receivable Management refers to the set of practices, procedures, and policies employed by a company to manage its sales on credit, monitor outstanding invoices, and ensure timely collection of payments owed by customers. Effective management includes credit risk assessment, establishing terms and conditions, invoicing, tracking receivables, and handling overdue accounts to optimize a company's cash flow and minimize bad debts.

Accounts Receivable Manager

An Accounts Receivable Manager oversees a company's accounts receivable department, responsible for managing incoming payments, ensuring timely collection of owed monies, maintaining accurate records, and reducing outstanding debts. They play a key role in cash flow management, credit policy enforcement, and customer relations regarding payment issues.

Accounts Receivable Process

The accounts receivable process encompasses the series of steps taken by a business to collect payments from its customers who have purchased goods or services on credit. This process includes issuing invoices, tracking payments, managing customer accounts, and handling overdue accounts. Effective management of this process is crucial for maintaining healthy cash flow.

Accounts Receivable Team

The accounts receivable team is responsible for managing a company's incoming payments and ensuring that customers pay their invoices on time. This team handles tasks such as invoice issuance, payment tracking, customer communication regarding outstanding debts, and implementing the company's credit policy.

Accrual Accounting

Accrual accounting is an accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur. This approach provides a more accurate picture of a company's financial condition by recognizing economic events as they happen, not only when cash changes hands.

Accrued Expense

Accrued expense is an accounting term for expenses that have been incurred but not yet paid or recorded through a transaction. It represents a company's obligation to pay for goods or services that have been received but are not yet documented in accounts payable. Accrued expenses are recognized on the income statement in the period they are incurred, following the accounting matching principle.

Accrued Revenue

Accrued revenue is revenue that has been earned but not yet received in cash or recorded. This accounting concept applies when a company provides goods or services at the end of an accounting period but has not yet invoiced the customer. Accrued revenue is recognized on the income statement as a receivable for the company.

ACH

ACH, or Automated Clearing House, is an electronic network for financial transactions in the United States, used for direct deposit, payroll, consumer bills, tax payments, and many other payment services. It allows money to be transferred electronically between banks and financial institutions, providing a reliable and efficient means of managing payments and collections.

Adjusting Entry

An adjusting entry is a journal entry made in the accounting records at the end of an accounting period. This entry is made to update the balances of accounts to reflect the true financial position and performance of a company before financial statements are prepared. Adjusting entries can include accruals, deferrals, prepayments, or estimations that align revenues and expenses to the period in which they actually occurred.

Aging Report

An aging report is a financial document that categorizes accounts receivables based on the time an invoice has been outstanding. It helps in identifying invoices that are overdue for payment.

Aging Schedule

An aging schedule is a table that breaks down a company's accounts receivable according to the time an invoice has been outstanding. It's a tool for managing credit and collections.

Amortization

Amortization is spreading the cost of an intangible asset over its useful life. It's a method of allocating the cost of an asset over time, used for things like patents or goodwill.

Audit Trail

An audit trail refers to the sequence of documents that validate or trace the financial transactions of a company from start to finish. It provides a chronological record, ensuring transparency and accountability in financial reporting, and is crucial for compliance with legal and tax regulations. An effective audit trail helps in detecting and preventing errors or fraud.

Average Collection Period

The Average Collection Period is the average number of days it takes for a business to receive payments from its customers for sales made on credit. It's a measure of the efficiency of a company's credit and collection policies.

Average Payment Period

The Average Payment Period is the average time it takes a company to pay its bills and invoices. It's a measure of the company's liquidity and ability to meet short-term obligations.

B

B2B Finance

B2B finance refers to financial transactions and arrangements that occur between businesses, as opposed to transactions between businesses and consumers (B2C). This includes trade credit, invoice financing, and supply chain financing. B2B finance solutions are designed to improve cash flow, manage working capital, and support the growth of businesses by facilitating smoother financial operations between companies.

Bad Debt

Bad debt refers to receivables that a company cannot collect and is often written off as an expense. This typically occurs when customers fail to pay their invoices within a reasonable time, indicating a loss for the company. Managing bad debt is essential for maintaining healthy cash flow and profitability.

Bad Debt Expense

Bad Debt Expense is a financial term representing the amount of non-collectable accounts receivable because of customers' inability to pay. It is recorded as an expense in the company's financial statements.

Balance Sheet

The Balance Sheet is a financial statement that shows a company's financial position at a specific point in time. It lists assets, liabilities, and shareholders' equity.

Balance Sheet Reconciliation

Balance Sheet Reconciliation is verifying the accuracy of balance sheet accounts by comparing them to source documents and resolving any discrepancies.

Bank Reconciliation

Bank Reconciliation is matching and comparing a company’s financial records to its bank statements to ensure accuracy and identify any discrepancies.

Best Possible DSO

Best Possible DSO is a theoretical metric that indicates the lowest possible average number of days it would take a company to collect its receivables if all customers paid on time, according to the terms. It represents an ideal state of efficiency in accounts receivable management, serving as a benchmark against which actual DSO can be compared to assess the effectiveness of a company's credit and collections policies.

Billing Cycle

A billing cycle refers to the interval of time during which bills are prepared for goods and services that a company provides to its customers. This period can vary depending on the business model or contractual agreement, ranging from monthly to annually. The cycle ends with the issuance of the bill to the customer, initiating the payment process.

Billing Process

The billing process is a series of steps undertaken by a business to issue invoices for goods or services rendered to customers. This process includes the preparation, sending, and tracking of invoices, ensuring that payments are requested in a timely and accurate manner. Effective management of the billing process is crucial for maintaining healthy cash flows.

C

Capital Expenditures

Capital Expenditures (CapEx) are funds used by a company to buy, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. This investment is considered an asset on the balance sheet and is essential for maintaining or increasing the scope of operations. CapEx decisions are crucial for long-term strategic planning and growth of a company.

Cash Application

Cash application is applying incoming payments to the appropriate customer accounts and invoices, ensuring that payments are accurately recorded in the financial records.

Cash Balance

The cash balance represents the amount of cash or cash equivalents that a company holds at any given point in time. It's a key indicator of a company's liquidity, reflecting its ability to meet short-term obligations and invest in opportunities. Monitoring the cash balance is crucial for effective cash flow management and ensuring operational stability.

Cash Flow

Cash flow refers to the total amount of money being transferred into and out of a business, particularly affecting its liquidity. It's essential for understanding a company's financial health.

Cash Flow Forecasting

Cash flow forecasting is estimating the flow of cash in and out of a business over a future period. It helps in budgeting and financial planning by predicting liquidity and funding needs.

Cash Flow Statement

The cash flow statement is a financial document that provides a detailed summary of a company's cash inflows and outflows over a specific period. It categorizes cash flow into operating, investing, and financing activities, offering insights into the company’s liquidity, solvency, and overall financial health.

Cash Posting

Cash posting is recording incoming payments to the correct customer accounts and ensuring that all payments are accounted for and properly documented.

CFO (Chief Financial Officer)

The Chief Financial Officer (CFO) is a senior executive responsible for managing the financial actions of a company. This role includes tracking cash flow, financial planning, and analyzing the company's financial strengths and weaknesses to propose corrective actions. The CFO plays a critical role in influencing company strategy and financial integrity.

Collection Dispute Letter

A collection dispute letter is a formal communication sent by a debtor to a creditor or collections agency, disputing a charge or the terms of debt repayment.

Collection Effectiveness Index

Collection Effectiveness Index (CEI) is a performance metric that measures a company's ability to collect accounts receivable in a timely manner, showing the effectiveness of its collection efforts.

Collection Period

The collection period, often referred to as DSO, measures the average time it takes for a company to collect payments after a sale has been made. It is a critical metric in assessing a company's liquidity and efficiency in managing its accounts receivable. A shorter collection period indicates quicker collections and better cash flow.

Collection Strategy

A collection strategy is an organized approach employed by businesses to manage and recover overdue accounts receivable, involving techniques for contacting customers and negotiating payments.

Controller

The Controller is a key managerial position in the accounting department of a company, overseeing the day-to-day operations of the accounting function, including financial reporting, accounts payable, accounts receivable, and payroll. The Controller ensures the company's financial statements are accurate, complete, and in compliance with accounting standards.

Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) is a financial metric that represents the direct costs because of the production of the goods sold by a company. This includes the cost of the materials and labor directly used to create the product, but excludes indirect expenses, such as distribution costs and sales force costs. COGS is crucial for calculating gross margin.

Credit Balance

A credit balance occurs when the total credits in an account exceed the total debits. In accounts receivable, a credit balance shows that a customer has overpaid, leading to a surplus that could be refunded or applied to future purchases. This balance reflects the amount the company owes to the customer or a third party.

Credit Limit

A credit limit is the maximum amount of credit that a lender will extend to a borrower. In business, it refers to the maximum amount that a company will allow a customer to charge on account.

Credit Management

Credit management is granting credit, setting the terms it's granted on, recovering this credit when it's due, and ensuring compliance with company credit policy.

Credit Memo

A credit memo is a document issued by a seller to a buyer, reducing the amount owed by the buyer. This can occur because of returns, errors, or allowances.

Credit Policy

A credit policy is a set of guidelines that a company follows when extending credit to customers. It outlines the criteria for creditworthiness assessment, terms of credit, payment period, and actions to be taken in case of late payments. A well-defined credit policy helps in managing credit risk, improving cash flow, and enhancing customer relationships.

Credit Purchase

Credit purchase refers to the acquisition of goods or services by a business where the payment is deferred to a future date. This type of transaction is recorded as an account payable for the buyer and an account receivable for the seller. Credit purchases allow businesses to manage cash flow more effectively by delaying outlays of cash.

Credit Risk

Credit risk is the possibility that a lender may not receive the owed principal and interest, which leads to an interruption of cash flows and increased costs for collection. It arises from the potential that a borrower will fail to meet the terms of any loan agreement or otherwise fail to repay a debt.

Credit Risk Management

Credit risk management is the practice of mitigating losses by understanding the adequacy of a company's capital and loan loss reserves at any time.

Credit Sales

Credit sales are transactions where goods or services are provided to a customer with the agreement that payment will be made at a later date.

Credit Score

A credit score represents a company's creditworthiness based on its financial history, payment habits, and credit relationships. Similar to individual credit scores, B2B credit scores help suppliers and lenders assess the risk of extending credit to a business. High scores indicate lower risk and can result in more favorable credit terms.

Credit Utilization

Credit utilization is a ratio that compares a company's current outstanding debts to its total available credit. It's an important metric in assessing a company's financial health and creditworthiness.

Creditworthiness

Creditworthiness assesses a borrower's likelihood to repay debts based on their credit history, financial stability, and other factors. Lenders and creditors use this evaluation to determine the risk of extending credit or loans. High creditworthiness can lead to better loan terms and lower interest rates.

Customer Acquisition

Customer acquisition is bringing new customers into a business. It involves identifying potential customers and convincing them to purchase the company's products or services. This process is crucial for business growth and can include strategies like marketing, promotions, sales, and customer relationship management.

D

Days Sales Outstanding

Days Sales Outstanding (DSO) is a financial metric calculating the average number of days it takes a company to collect payments after a sale. Lower DSO shows quicker collections.

Debtor

A Debtor is an individual or a company that owes money to another entity. In accounting, debtors are often referred to in accounts receivable.

Debt to Equity Ratio

The Debt-to-Equity Ratio is a financial ratio showing the relative proportion of shareholders' equity and debt used to finance a company's assets. It's a measure of a company's financial leverage.

Debits

Debits represent one side of an accounting entry that increases assets or expenses and decreases liabilities, equity, or revenue. In double-entry bookkeeping, every debit entry must have a corresponding credit entry, maintaining the accounting equation's balance.

Debit Memo

A Debit Memo is a document issued by a buyer to a seller, showing a reduction in the amount that the buyer owes to the seller. It's the opposite of a credit memo.

Delayed Payment

A delayed payment occurs when a payment is made after the due date agreed upon by the debtor and creditor. Delayed payments can result from various reasons, including financial difficulties, disputes over the invoice, or administrative errors. They can affect a company's cash flow and may incur additional charges or interest.

Delinquency

Delinquency occurs when a borrower fails to make a loan or credit payment on time. It typically refers to payments that are overdue by a certain period, and prolonged delinquency can lead to default, affecting the borrower's credit score and ability to secure future credit.

Depreciation Journal Entry

A depreciation journal entry records the reduction in value of a tangible asset over its useful life. This accounting process allocates the cost of an asset over its operational years, reflecting wear and tear, obsolescence, or age. Depreciation affects the balance sheet and income statement.

Direct Debit

Direct debit is a financial transaction in which a payee withdraws funds directly from a payer's bank account. Formally authorized by the payer, direct debits are used for recurring payments, such as utility bills or subscriptions, offering convenience and ensuring timely payments.

Discounting

Discounting in finance refers to the process of determining the present value of a payment or series of payments to be received in the future, by applying a discount rate. This concept is also used in sales and invoicing, where sellers offer a reduced price to buyers as an incentive for early payment. Discounting helps improve cash flow and reduces credit risk.

Dispute Collection

Dispute collection involves the process of resolving disagreements between a seller and a buyer regarding the terms of sale, the quality of goods or services delivered, or the accuracy of the invoice. Effective dispute resolution is crucial for maintaining customer relationships and ensuring timely payments to improve cash flow.

Dispute Resolution

Dispute Resolution refers to the process of resolving disagreements between parties, often involving negotiation, mediation, or arbitration, especially in a financial or commercial context.

Double Billing

Double Billing occurs when a company or individual is charged twice for the same service or product. It's an error in billing that requires correction.

Double Entry Accounting

Double Entry Accounting is a fundamental accounting concept where every transaction affects at least two accounts, with one debit and one credit entry. This method ensures the accounting equation (Assets = Liabilities + Equity) remains balanced, providing a more complete and accurate financial picture. It's essential for detailed financial reporting and error detection in business finances.

Dunning

Dunning is the process of methodically communicating with customers to ensure the collection of accounts receivable. It often involves sending reminders or making phone calls.

Dunning Process

The dunning process is a systematic approach used by businesses to communicate with customers to ensure the collection of accounts receivable that are past due. This process typically involves sending a series of reminders, starting with gentle notices and escalating to more serious warnings about potential consequences of non-payment. The aim is to recover owed funds while maintaining a positive relationship with the customer. Effective dunning can improve cash flow and reduce the amount of bad debt a company incurs.

E

Early Payment Discount

An Early Payment Discount is an incentive offered by a seller to a buyer for paying an invoice before the due date. It's a strategy to encourage quicker payment.

Earnout

An earnout is a contractual provision in the sale of a business where additional payments are made to the sellers after the sale, contingent upon the business achieving certain financial targets or milestones post-acquisition. Earnouts are used to bridge valuation gaps between the buyer and seller, aligning interests by incentivizing the seller to continue contributing to the business's success after the sale.

Electronic Funds Transfer

Electronic Funds Transfer (EFT) is a digital method of transferring money from one bank account to another, either within a single financial institution or across multiple institutions.

ERP

Enterprise Resource Planning is a type of software used by organizations to manage and integrate the important parts of their businesses. An ERP system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, human resources, and more. It helps facilitate the flow of information between all business functions within the boundaries of the organization and manages the connections to outside stakeholders.

Escrow

Escrow refers to a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a transaction. It helps make transactions more secure by keeping the payment in a secure escrow account, which is only released when all the terms of an agreement are met as overseen by the escrow company.

Expense Recognition

Expense recognition is an accounting principle that dictates the timing of reporting an expense in the financial statements. It aligns with the matching principle, ensuring that expenses are recorded in the same period as the revenues they helped generate. This principle is crucial for accurately reflecting a company's financial performance and position.

F

Factoring

Factoring is a financial transaction where a business sells its accounts receivable to a third party (a factor) at a discount, to secure immediate cash.

Finance Analytics

Finance Analytics involves using analytical techniques and tools to analyze financial data and trends, assisting in strategic planning and decision-making processes.

Finance Automation

Finance Automation involves the use of technology to automate financial operations and processes, reducing manual efforts and increasing efficiency in financial management.

Finance Strategy

Finance Strategy refers to the long-term plan of action designed to achieve financial goals and objectives, guiding the management and utilization of financial resources

Financial Audit

A financial audit is an independent examination of financial statements of an organization to ensure that they present a true and fair view of the company's financial performance and position. Conducted by an external auditor, this process involves the evaluation of an organization's financial records, operations, and controls to verify the accuracy and completeness of financial reports. It enhances the credibility of the financial statements with stakeholders..

Financial Bubble

A financial bubble is an economic cycle characterized by the rapid escalation of market value, particularly in the price of assets, followed by a contraction.

Financial Close

Financial close refers to the process of finalizing a company's financial records at the end of a reporting period. It involves ensuring all transactions are accurately recorded.

Financial Data Management

Financial data danagement is collecting, storing, managing, and processing financial data to ensure accuracy, security, and compliance with regulations.

Financial Forecasting

Financial forecasting is estimating or predicting a business's future financial outcomes, such as revenues, expenses, and profits, based on historical data and analysis.

Financial KPI

Financial KPI (Key Performance Indicator) refers to quantifiable measures used by a company to evaluate its financial health and performance, such as revenue growth, profit margin, and return on investment.

Financial Management System

A Financial Management System is a software system used for managing a company's financial operations, including accounting, budgeting, and financial reporting.

Financial Modeling

Financial modeling involves creating a mathematical model representing a company's financial performance, used for decision making and financial analysis.

Financial Optimization

Financial optimization is making strategic decisions to maximize a company's financial performance, including efficiency in resource allocation and investment strategies.

Financial Performance

Financial performance is a measure of how well a company can use assets from its primary mode of business and generate revenues. It is assessed using several indicators, such as revenue, profitability, cash flow, and return on assets. Analyzing financial performance over time helps stakeholders understand the company's financial health and make informed decisions.

Financial Planning and Analysis

Financial Planning and Analysis (FP&A) is budgeting, forecasting, and analyzing a company's financial statements to guide business strategy and decision-making.

Financial Reporting

Financial reporting is presenting a company's financial data and performance over a specific period. It includes balance sheets, income statements, and cash flow statements.

Financial Risk Assessment

Financial Risk Assessment is identifying and evaluating potential risks that could negatively affect a company's financial stability.

Financial Risk Management

Financial Risk Management is the practice of protecting economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk.

Financial Statement

A financial statement is a formal record of the financial activities and position of a business, person, or other entity. Presented in a structured manner and in a form easy to understand, they include the balance sheet, income statement, and cash flow statement, providing insights into a company's performance, financial health, and cash flows over a specified period.

Force Pay Debit Memo

A force pay debit memo is a bank document that prioritizes the processing of a specific check or debit transaction due to its importance, ensuring the payment is made even if it results in an overdraft of the account. It's typically used in situations where failing to process the payment could have significant repercussions.

G

GAAP

GAAP (Generally Accepted Accounting Principles) is a set of rules and standards for financial reporting commonly used in accounting in the United States.

General Ledger

The General Ledger, or Ledger, is a complete record of all financial transactions over the life of a company. It serves as the primary accounting record.

GRN

GRN (Goods Received Note) is a document used in the purchasing process to record the receipt of goods from a supplier, confirming that the goods have been delivered as agreed.

Gross Profit Margin

Gross profit margin is a financial metric that represents the percentage of revenue that exceeds the cost of goods sold (COGS). It measures the efficiency of a company in managing its direct costs related to the production of goods or services and is critical for assessing a business's profitability and financial health.

H

Hedging

Hedging is a financial strategy used to reduce or mitigate the risk of adverse price movements in an asset. By taking an offsetting position in a related security, such as futures contracts, options, or derivatives, investors and companies can protect themselves against losses due to market volatility.

Holdback

Holdback refers to a portion of money temporarily held back in a transaction, such as a percentage of a contractor's payment withheld until completion of a project.

I

Income Statement

An income statement is a financial statement that reports a company's financial performance over a specific accounting period. It details revenues, expenses, profits, and losses to show how much money a company made or lost. The income statement is vital for assessing a company's profitability and operational efficiency.

International Financial Reporting Standards

IFRS is a set of accounting standards developed by the International Accounting Standards Board (IASB) that serve as a global framework for financial reporting. They aim to bring transparency, accountability, and efficiency to financial markets around the world, helping investors and other users of financial statements compare the financial performance of publicly listed companies worldwide.

Inventory Turnover Ratio

The inventory turnover ratio measures how many times a company sells and replaces its inventory over a specific period. It indicates the efficiency of inventory management and product demand. A high ratio suggests strong sales, whereas a low ratio may indicate overstocking or weak sales.

Invoice

An Invoice is a document issued by a seller to a buyer, listing goods or services provided, with details of quantities, prices, terms, and payment methods.

Invoice Discrepancy

An invoice discrepancy arises when there's a mismatch between the details on an invoice and what was agreed upon or received, such as incorrect pricing, quantities, or product descriptions. Resolving discrepancies quickly is crucial to maintaining good supplier and customer relationships.

Invoice Matching

Invoice Matching is the process in accounting, where purchase orders are matched with goods receipt notes and supplier invoices to ensure consistency and accuracy in financial records.

Invoice Processing

Invoice Processing involves the handling and management of incoming invoices from receipt to payment. This process includes the verification of invoice details, approval for payment, and updating of financial records. Efficient invoice processing is crucial for maintaining accurate financial statements, ensuring timely payments to suppliers, and managing cash flows effectively.

Invoice to Cash

Invoice to cash refers to the end-to-end process within accounts receivable that covers issuing invoices to customers, tracking and applying payments received, and managing any outstanding customer debt. This process is critical for maintaining healthy cash flow, ensuring that businesses convert sales into available funds efficiently.

J

Journal Entry

A Journal Entry is a record in accounting that logs a business transaction. It includes details like date, accounts affected, amounts, and a brief description of the transaction.

K

Key Account

A Key Account is a customer who contributes a significant amount of business to a company, often receiving special attention and customized service because of their importance.

L

Late Payment

A late payment occurs when a debtor fails to pay a due amount by the agreed-upon payment deadline. Late payments can adversely affect a business's cash flow and may lead to additional charges, interest, or penalties for the debtor. Managing late payments involves follow-up communications, negotiations for payment plans, and potentially involving collection agencies.

Liabilities

Liabilities are financial obligations or debts a company owes to others, such as loans, accounts payable, mortgages, and accrued expenses.

Liquidity Risk

Liquidity risk is the risk that an entity cannot meet its short-term financial obligations because of the inability to convert assets into cash without significant loss. This risk affects a company's capacity to pay its debts and operational costs, potentially leading to financial distress if not managed properly.

M

Market Risk

Market risk, also known as systematic risk, refers to the potential for investors to experience losses because of factors that affect the overall performance of the financial markets, such as economic recessions, political turmoil, or changes in interest rates. It is inherent in all investments and cannot be eliminated through diversification.

Maturity Date

The Maturity Date is the date on which the principal amount of a note, draft, acceptance bond, or other debt instrument becomes due and is repaid to the investor.

Mergers and Acquisitions

Mergers and Acquisitions (M&A) refer to the consolidation of companies or assets through various financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions. M&A helps companies grow or downsize and enter new markets or sectors. It's a complex process involving negotiation, due diligence, and integration.

Month End Close

Month End Close is the accounting process of closing the books at the end of each month, ensuring all financial transactions are accounted for and recorded accurately.

MTD

MTD (Month-To-Date) is a period starting at the beginning of the current month and ending at the current date. It's used in financial reporting to track performance in a specific month.

N

Net Accounts Receivable

Net Accounts Receivable is the total amount of money owed to a company by its customers, minus any allowances for doubtful accounts. It represents the expected realizable value of receivables.

Net Profit Margin

Net Profit Margin is a financial ratio that measures the percentage of revenue that exceeds the costs and expenses associated with a company's operations.

Net Realizable Value

Net realizable value is the estimated selling price of goods, minus the cost of their sale or disposal. It's used in accounting to assess the value of an asset.

Net Terms

Net terms are payment terms used in invoicing that specify the number of days within which a payment must be made, like "NET 30" showing payment due within 30 days.

O

Operating Expenses

Operating expenses are the costs associated with running a business's core operations on a daily basis. These can include rent, utilities, salaries, and marketing expenses. They do not include costs directly tied to production, such as raw materials. Managing operating expenses is vital for maintaining profitability.

Operating Margin

Operating margin, a financial metric, measures the proportion of a company's revenue that is left over after paying for variable costs of production, such as wages and raw materials. It is a key indicator of the efficiency of a company's core business activities and its ability to generate profit from sales before accounting for taxes and interest expenses.

Order to Cash

Order to Cash is a business process that involves everything from receiving an order to collecting payment. It encompasses the entire process of order processing and revenue collection.

Outstanding Invoice

An outstanding invoice is an invoice that is issued by a business but has not yet been paid by the customer. It represents an amount that is owed to the business.

Overdue Invoice

An overdue invoice is a billing statement that has not been paid by its due date. It often results in additional charges and can negatively impact business cash flow.

P

Partial Payment

Partial payment is a payment made that is less than the full amount due on an invoice or bill. It is often a temporary solution to a cash flow problem.

Past Due

Past due refers to a payment that has not been made by its due date. Invoices, loans, or any financial obligations can become past due, potentially leading to late fees, interest charges, and negative impacts on credit ratings. Monitoring and managing past due payments are vital for financial health and creditworthiness.

Payment Adjustment

A payment adjustment is a modification made to the amount or terms of a payment to correct an error or accommodate a change in the transaction's circumstances. Adjustments can include refunds, discounts, additional charges, or changes in payment schedules. They are important for accurate financial reporting and customer satisfaction.

Payment Terms

Payment terms are the conditions under which a seller will complete a sale. Typically, these terms specify the period allowed to a buyer to pay off the amount due, and may include incentives for early payment and penalties for late payment. Common terms include net 30, showing payment is due within 30 days after the invoice date.

Petty Cash

Petty cash is a small amount of cash kept on hand used for making minor, incidental expenses in a business, like office supplies or small repairs.

Profitability

Profitability is a financial measure of a company's ability to generate income relative to revenue, costs, and expenses during a specific period. It shows the financial success of a company.

Profit Margin

Profit margin is a financial metric that measures the percentage of revenue that exceeds the costs of producing goods or services. It's a key indicator of a company's financial health and efficiency, showing how much of each dollar in sales a company keeps in earnings.

Promise to Pay

A promise-to-pay (P2P or PTP) is a written agreement or acknowledgment in which a person agrees to pay a specified amount of money to another party by a designated date.

R

R2R

R2R, or Record to Report, is a finance and accounting process that involves collecting, processing, and delivering relevant, timely, and accurate information for reporting and analysis.

Receivables Turnover Ratio

The Receivables Turnover Ratio is a financial metric that measures how efficiently a company uses its assets by comparing net credit sales with average accounts receivable.

Refinancing

Refinancing is replacing an existing debt obligation with another debt obligation under different terms. It's often done to secure better interest rates or payment terms.

Remittance

Remittance is the money transfer by a foreign worker to an individual in their home country. In business, it means payment for goods or services.

Return on Equity

Return on Equity (ROE) is a financial ratio that measures the profitability of a company in relation to shareholder equity. It indicates how effectively management is using a company’s assets to create profits, providing insight into financial performance and shareholder value.

Revenue

Revenue, also known as sales, is the total amount of money generated by a company from its business activities, such as the sale of goods or services, before any expenses are deducted. It serves as a top-line figure on the income statement from which costs are subtracted to determine net income. Revenue growth is a key indicator of a company's financial health and operational success.

Revenue Forecasting

Revenue forecasting involves predicting future sales volumes over a specified period, based on historical data, market analysis, and an understanding of future conditions. This process is crucial for budgeting, financial planning, and strategic decision-making, helping businesses allocate resources and set goals.

Revenue Recognition

Revenue recognition is an accounting principle that outlines the specific conditions under which revenue is recognized. The principle dictates that revenue should only be recognized when it is earned and measurable, regardless of when cash is received. This concept ensures that financial statements provide a clear and accurate picture of a company's revenue.

Rolling Forecast

A rolling forecast is a financial planning method that updates forecasts regularly, extending the forecast period by adding a new period as the current period is completed.

S

Sales Volume

Sales volume refers to the total number of units sold within a specific period. It's a critical metric for businesses as it directly impacts revenue and profitability. Tracking sales volume helps companies understand market demand, the effectiveness of sales strategies, and operational efficiency. It is often analyzed along with price changes to assess their impact on overall sales performance.

Securitization

Securitization is a financial practice of pooling various types of contractual debt, like mortgages, and selling them as bonds, pass-through securities, or collateralized mortgage obligations.

Shortfall

A shortfall occurs when actual revenues, profits, or financial performance fall below the projected or required amounts. It often indicates a gap between planned financial outcomes and reality, potentially affecting a company's ability to meet its obligations or investment goals. Managing shortfalls requires strategic adjustments to spending, operations, or revenue generation.

SLA in Finance

SLA in Finance, or Service Level Agreement in Finance, is a contract between a service provider and the end user that defines the level of service expected from the service provider.

Structured Debt

Structured debt refers to customized financial instruments created to meet specific investor needs that cannot be addressed with standard financial products. It involves complex arrangements, including various derivatives, to structure the repayment schedule and risk profile. Structured debt can offer higher returns but comes with increased risk and complexity.

Supplier Relationship Management

Supplier Relationship Management is the systematic approach to evaluating vendors that supply goods, materials, and services to a business, and managing their performance.

Supplier Risk Management

Supplier Risk Management involves identifying, assessing, and managing potential risks associated with a company's suppliers to ensure reliability and continuity of supply.

T

Total Balance

Total Balance refers to the total amount of money in an account at a time, considering all debits and credits. It's the sum of all transactions, reflecting the current financial position of the account.

Trade Payables

Trade payables are amounts owed by a business to its suppliers for goods or services received that have not yet been paid for. They are a form of short-term liability recorded on the company's balance sheet. Efficient management of trade payables is essential for maintaining positive supplier relationships and optimizing cash flow.

Trade Receivables

Trade Receivables are the amounts billed to a company's customers for goods sold or services provided on credit. They are considered a current asset on the company's balance sheet.

Transfer Pricing

Transfer pricing refers to the rules and methods for pricing transactions between enterprises under common ownership or control. It's crucial for tax purposes and financial reporting, ensuring that transactions between subsidiaries are priced as if they were between unrelated parties, thereby preventing profit shifting and ensuring compliance with international tax laws.

U

Unapplied Credit

Unapplied Credit refers to a credit balance in an account that has not yet been assigned or allocated to a specific invoice or charge.

Unearned Revenue

Unearned Revenue refers to money received by a company for goods or services yet to be delivered or provided. It's recorded as a liability on the balance sheet until the goods or services are delivered.

Unpaid Invoice

An unpaid invoice represents a bill for goods or services that has been issued by a seller to a buyer, where the payment has not been made by the due date. Unpaid invoices can negatively impact a company's cash flow and require follow-up actions, such as reminders or engaging collection services, to ensure payment is received.

V

Variance Analysis

Variance Analysis is a financial technique used to analyze the difference between actual financial performance and budgeted or standard financial performance.

VP of Finance

The Vice President (VP) of Finance is a senior executive role responsible for managing a company's financial planning, record-keeping, and reporting. This position involves overseeing budgeting, forecasting, investments, and risk management activities. The VP of Finance plays a crucial role in strategic planning and ensuring the financial health and growth of the organization.

W

Write off

A write-off is the accounting action of declaring that a portion of a company's receivables or assets is uncollectible and recording it as a loss.

Y

Year End Closing

Year End Closing is reviewing and closing out accounts at the end of a fiscal year. It involves reconciling accounts and preparing financial statements for the year.

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