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Ultimate glossary for accounts receivable, credit control, and debt recovery

Terms and their definitions or explanations, related to accounts receiavables, credit control and debt recovyer. This glossary is meant to help you understand technical or specialized vocabulary and terminology.

A

  • Account condition
    The current status of an account (e.g. open, paid, and repossessed).
  • Account number
    The unique number assigned by a credit grantor to identify a specific account.
  • Account scoring

    The analysis of a debtor’s account based on the debtor’s account activation information. In debt collection, this scoring is used to determine the collectability of the debt.

  • Accounting
    Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. (Source: https://www.investopedia.com/terms/a/accounting.asp)
  • Accounting software
    Accounting software describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, journal, general ledger, payroll, and trial balance. It functions as an accounting information system. (Source: https://en.wikipedia.org/wiki/Accounting_software)
  • Accounts in good standing
    The status of an account, which reflects positively.
  • Accounts payable (AP)
    Your accounts payable is both the part of your business that is responsible for making the required payments to your suppliers and creditors, and also the records detailing those payments.
  • Accounts receivable (AR)

    Your accounts receivable represents any outstanding money owed by the customer to you in return for the sale of goods or services.

    It can also refer to the department in your organization that deals with invoicing, customer credit, and monies owed, and the records of such transactions.

  • Accounts receivable management (ARM)

    ARM refers to the systems and processes that companies use to track and record payments made for goods and services, outstanding payments, and lines of customer credit.

  • Accounts receivable outsourcing (ARO)

    Not all companies have the ability, or desire, to have their accounts receivable controlled in-house. ARO allows companies to outsource the management of their accounts receivable to a professional credit control company, like Chaser.

    The benefits of doing so include paying less than hiring full-time staff, saving time on managing your accounts receivable, and getting paid faster and more often.

  • Accounts receivables automation

    An accounts receivable automation system takes away human error risk such as typing mistakes and misplacement of documents.

    As we know, the concept of automated accounting systems is not a new one, but until recently, even some of the computerised side of these systems required manual input. In recent years, however, accounting systems have taken great strides toward being more automated and user-friendly.

  • Accounts receivables turnover ratio

    A calculation that will show you how effective your business is at lending out and then collecting your money in simple terms.

  • Acid test ratio
    This is a calculation of current assets, plus receivables, plus short-term investments divided by current liabilities, which determines a business’s ability to meet its obligations in the short term. It is also known as the quick ratio.
  • Administrative receivership
    Creditors can appoint an administrative receiver to recover money due when the debtor fails to comply with the terms of the credit agreement. The administrative receiver must be a licensed insolvency practitioner.
  • Aged debt or aged receivables
    The ageing of the amounts of money owed to a business by their customers. A company will normally run a monthly aged receivables report to determine which debtors have outstanding amounts due in 30, 60, 90, or 120 days or more.
  • Aged debt report or aged receivables report

    Both reports detail the amount owed to you by each of your customers and can normally be sorted by the issue dates of the invoices in question or their due dates.

  • Ageing

    The process by which your accounts receivable are evaluated with the aim of highlighting any irregularities.

  • Alternative dispute resolution (ADR)

    The means used by two or more parties involved in the process of attempting to settle a legal dispute outside of court.

  • Annual return

    An annual return is a document that must be filed by businesses in the UK, which must include details of the company’s shares and capital along with any shareholder or director changes. This is often one of the first documents to be studied by a collector prior to commencing debt collection action.

  • Arrears

    Arrears is a legal term that refers to any outstanding debt.

  • Assets

    Anything owned that has a monetary value. It is normally expressed as fixed or current.

  • Auditing

    The process through which businesses review and assess various facets of their operations, usually focussing on their financial accounts.

  • Automatic stay
    An automatic stay is a legal provision that can prevent creditors from attempting to recover monies owed from debtors on a temporary basis. The most common use of an automatic stay is when a person or business files for bankruptcy.

B

  • BACS
    An acronym standing for Bankers’ Automated Clearing System. BACS is one of the processes through which funds are electronically moved from one account to another.
  • Bad debt
    Bad debt refers to any sum of money that is both outstanding and has been deemed unrecoverable through conventional means.
  • Bad debt ratio
    A calculation based on the percentage of unrecoverable debt compared to total sales figures.
  • Balance sheet
    The balance sheet is a statement that summarizes a business’s financial position, including assets and liabilities, and equity.
  • Bankruptcy
    When a company is unable to pay its debts, the company could file for bankruptcy to seek relief from some or all debts. This legal process is normally initiated by the company who is the debtor but can also be imposed by a court order.
  • Business debt collection
    See commercial debt collection.
  • Business-to-business (B2B)
    A commonly used acronym meaning business-to-business and normally referring to commercial transactions.
  • Business-to-consumer (B2C)
    Another commonly used acronym meaning business-to-consumer and most commonly related to retail transactions.

C

  • Cash
    Available funds held in cash, cash in hand or cash on bank deposit.
  • Cash flow
    Often in relation to liquidity, cash flow refers to the total amount of money passing in and out of a business.
  • Cash in advance
    A payment option where a customer pays for goods or services in advance and in full.
  • Cash on delivery (COD)
    The most common form of payment, in which the customer pays for goods and services when they are delivered, rather than in advance.
  • Chapter 11
    Another form of bankruptcy which, in comparison to Chapter 7, allows the debtor to reorganize their debts and assets with the aim of paying creditors back over time without going out of business.
  • Chapter 7
    A specific form of bankruptcy in which the debtor immediately stops all business operations and goes out of business. All assets are then liquidated to pay creditors, starting with unsecured priority debt, then secured debt, and then non-priority unsecured debt.
  • Charge-off (or write-off)
    When a credit grantor writes off an account in their books as unlikely to be collected, this is known as a charge-off or write-off.
  • Co-debtor
    A co-debtor refers to one of a group of two or more debtors who are liable for the same debts.
  • Collection
    The recovery of outstanding amounts owed by a debtor to a creditor.
  • Collection agency
    A company that specializes in debt collection. Some agencies such as Chaser collect debt in the amicable phase on a ‘No Win, No Fee’ basis. Learn more about Chaser Collections: https://www.chaserhq.com/debt-collections
  • Collection effectiveness index
    Sometimes referred to as CEI, the collection effectiveness index is a form of metric that companies use to evaluate how effective their credit control processes are.
  • Commercial debt collection
    Debt collection from a commercial business.
  • Contingency
    A contingency refers to a future event that is theoretically possible but cannot be clearly predicted. This often refers to a negative economic event that needs to be planned for in order to mitigate its effects.
  • Contingency collection
    Collections conducted on a contingency basis means that the collection agency retains a percentage of the amount collected.
  • Credit
    Credit is the promise to at a later date pay for services or goods received.
  • Credit check
    A credit check, which is also known as a credit search, is when a company looks at information from your credit report to understand your financial behaviour.
  • Credit control
    The process through which companies exert control over their accounts receivables, making sure invoices are sent on time, received payments are recovered and customers are chased for any outstanding balances.
  • Credit control automation
    The automation of a business' credit control process, for example, automated invoice chasing, tracking and credit checking. This has the benefits of time savings and improved efficiency in credit control procedures. Click here to learn more about the benefits of credit control automation: https://www.chaserhq.com/blog/automating-customer-communications-in-accounts-receivables-is-effective-and-can-be-personalised
  • Credit control policy
    A company’s credit control policy is a set of regulations that govern how you trade on credit terms. You can download a credit control policy here: https://www.chaserhq.com/blog/credit-control-and-debt-collection-policy-template-for-businesses
  • Credit control software
    Credit control software takes advantage of advances in automation to reduce the need for active oversight of accounts receivable by business owners, streamlining the process of implementing effective credit control. Using credit control software like Chaser allows customers to get paid 16 days sooner on average while also saving more than fifteen hours per week on credit control management. What is cloud credit control software? https://www.chaserhq.com/blog/what-is-cloud-credit-control-software
  • Credit insurance
    Credit insurance refers to a specific insurance policy that companies purchase from private insurance providers with the aim of protecting their accounts receivable from any potential losses imposed by bad debt or customer bankruptcy.
  • Credit limit
    The total amount of credit that any entity is willing to extend to their client. By using a credit control software like Chaser, you are able to set credit limits for each of your clients and you will be notified when these are reached. As a result, you have full control and transparency over which clients you should keep an extra eye on.
  • Credit management
    Credit management is granting and managing credit accounts to new and existing customers within a company. If your company offers credit accounts, they need to be monitored and reconciled regularly. Read here about the importance of credit management https://www.chaserhq.com/blog/the-importance-of-credit-management-at-your-business
  • Credit scoring
    Creditors use this instrument to make an objective measurement of the risk involved in issuing credit. The criteria used in the scoring process are determined by the creditor. Credit scoring optimizes response times and issuance procedures in granting credit.
  • Creditor
    A person or a company who lends you money, supplies goods or services to a customer in return for payment.
  • Creditworthiness
    The assessment of a company’s current and future ability to honour debt obligations as agreed. This is often based on credit history, credit rating, and credit score.
  • Current assets
    Cash or easily convertible assets such debts, shares and short term investments.
  • Customer relationship management
    Often shortened to CRM, customer relationship management is the process through which an organization both understands and provides for the needs of its customers. It also refers to certain types of software which are used to assist in this process.

D

  • Days sales outstanding
    Often shortened to DSO, days sales outstanding refers to the average number of days that elapse before a company is able to collect revenue after a sale has been made. Chaser users experience an average of a 25 per cent reduction in DSO. Reducing days sales outstanding in a recession: automated accounts receivable: https://www.chaserhq.com/blog/reducing-days-sales-outstanding-in-a-recession-automated-accounts-receivable
  • Debenture
    A document recording the indebtedness of one party to the other. It is a promise to pay and is secured by a fixed and floating charge over the company’s assets.
  • Debt
    An amount of money owed.
  • Debt collection agency

    A third party employed by a creditor to collect an unpaid account from a debtor.

  • Debt collection policy

    A company’s debt collection policy is a set of regulations that govern how you trade on credit terms.

  • Debt collections
    The hiring of a professional debt collection agency to recover bad debt as a last resort. Many debt collectors employ aggressive and harassing techniques that can impact the relationship that businesses build with their customers. This results in small business owners, for whom these relationships are a vital source of repeat business, writing off bad debt rather than attempting to recover it. Chaser’s debt collection service takes a different approach, acting as a mediator between our clients and their customers, finding the best resolution for the issue without damaging those carefully created business relationships. Here’s an article on when to escalate invoices to debt collection: https://www.chaserhq.com/blog/when-to-escalate-invoices-to-debt-collection
  • Debt recovery agency

    Specialists in disputed debt recovery cases.

  • Debtor

    A person or business who owes money to another party, usually called the creditor.

  • Default

    Becoming default or defaulting is the failure of an entity to make prompt payment when a payment is due.

  • Deficit

    Income is less than your expenditure.

  • Delinquent

    Delinquent refers to any entity that has failed to perform an obligation, such as making a payment, when they are obligated to do so.

  • Direct debit

    A process where a bank or other financial institution is instructed to pay a third party a certain amount of money each month or on another specified time scale.

  • Disclosure statement

    A disclosure statement refers to any document that outlines the terms and conditions of a loan.

    Common inclusions on a disclosure statement include the interest rate, any fees, the amount borrowed, if the loan comes with any insurance, and the specific responsibilities of the borrower.

E

  • Early repayment charge

    A charge, also called an early settlement fee, payable to a lender, if the debt is settled before the agreement has ended.

  • EOM
    An acronym meaning End of the Month, EOM is a common inclusion in payment terms and instructs the entity receiving the invoice to make payment at the end of the calendar month.
  • ERP
    Enterprise resource planning, or EPR, normally refers to a software platform that automates a manufacturing business’s operations related to production, distribution, and supply chain management.
  • Expenditure

    Money spent from incomes received.

  • Extension of credit
    When you determine whether a customer’s credit should be extended or not, you need to look at their payment history and their statements. Often missed payments result from something out of their control, such as losing a job or an emergency in the family. There can also be internal errors, lost payments or paperwork, especially if you are still working with manual systems.

F

  • Factoring

    A financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount.

  • Final discharge

    A court notice that shows when a bankruptcy is over and the bankrupt individual is now debt free.

  • Finance automation

    This refers to automating core processes such as bookkeeping, accounts payable, invoicing and accounts receivable, tax compliance, payroll, and expense management.

  • Fintech

    Fintech refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers.

  • Fixed assets

    Tangible or intangible long term assets not normally intended for resale.

  • Flash notice
    A flash notice is the real-time notification of a change in sensitive credit information and normally concerns the results of NSF/RTM checks, an application for bankruptcy, or a credit account being passed to a debt collection agency.

G

  • Goods and Services Tax

    A goods and services tax, or GST, refers to any tax that is levied during the sale of goods and services. It is in many ways similar to a sales tax.

  • Goodwill

    This is an intangible fixed asset.

  • Gross profit

    Net sales after deduction direct sales costs.

  • Guarantee

    A written promise by one party to meet a contractual commitment of another party in the event of a default.

  • Guarantor
    A party that agrees to pay a debt if another party fails to do so.

H

  • High balance

    The highest balance a borrower has owed on an account.

I

  • In-house collections

    This is when an entity conducts its own debt collection using its own staff.

  • Income protection

    An insurance cover which provides a regular monthly income if unable to work due to an accident or illness.

  • Income statement

    An income statement refers to any document that shows how net revenue is converted into net incomes. This document is also commonly referred to as a profit and loss statement.

  • Income support

    A means-tested benefit for people on low income.

  • Indemnity

    A guarantee against default, loss, expense or wrong doing incurred.

  • Individual voluntary arrangement

    A legally binding agreement between debtors and their creditors whereby an agreed payment of the debts is made over a set period of time.

  • Insolvency

    An inability to repay debts in a reasonable amount of time as and when they fall due and where the value of assets is less than the liabilities.

  • International Chamber of Commerce

    Also known as the ICC, the International Chamber of Commerce is a vast organization with a huge number of members, ranging into the tens of thousands, from over 130 countries and covering nearly all business sectors.

  • International commercial terms

    Sometimes referred to as Incoterms, these are trade terms that are published by the ICC and that often form the basis of both domestic and international pro forma contracts.

  • Invoice

    An invoice is a commercial document issued by a supplier to a purchaser relating to a sale or transaction, outlining products, quantities, prices and payment terms.

  • Invoice chasing

    To be added

    Here are tips on how to chase late payments without the awkwardness: https://www.chaserhq.com/blog/how-to-deal-with-late-payments-without-the-cringe-factor

  • Invoice disputes

    To be added

  • Invoice factoring

    Invoice factoring is a financial transaction and a form of debtor financing in which businesses sell their accounts receivable to a third party at a discount. Companies will sometimes factor receivables to meet their imminent cash needs.

  • Invoice tracking

    The tracking of due invoices including due dates, days overdue, and late fees.

  • Invoicing

    To send an invoice when billing a customer.

  • Involuntary bankruptcy

    While most forms of bankruptcy are initiated by the debtor, courts of law can impose bankruptcy on an individual or business at the request of their creditors. In which case, it is referred to as ‘involuntary bankruptcy’.

L

  • Late payment

    A payment that is made after it’s due date.

  • Late Payment of Commercial Debts (Interest) Act 1998

    This law allows creditors to claim compensation, interest and third party recovery costs in relation to unpaid commercial invoices. It effectively allows debt recovery companies to offer free to the creditor debt collection services.

  • Late payment reminder

    An email, letter, phone call, SMS or other means of communications used to remind a customer that a payment owed is overdue.

  • Liquidation

    The inability of a company to service its debts may result in the winding up of the company if it is declared insolvent by a creditor, leading to liquidation. Many debt collection agencies will seek to wind up a company should Court action not result in the recovery of a debt.

     

M

  • Middle of month

    Often confusingly shortened to MOM, this is another form of payment term which instructs the debtor to make payment by the middle of the calendar month.

N

  • Net income

    A businesses’ net income refers to the total of all revenues and expenses that have been completely accounted for.

  • Net worth

    Shows a company’s financial position including capital reserves, issued capital, share premiums, general reserves, grants and profits and losses. Net worth is a good indication of the funds that might be available should the company be wound up during debt recovery action.

  • Notes receivable

    Notes receivable are funds in the form of a written promise or promissory note. This states that the customer owes the company an amount and is a written promise to pay an amount by a set date. Notes due in a year or more are long-term assets; those under a year are still considered current assets.

N

  • Net revenue

    A businesses’ net revenue refers to the total of funds received from the sale of goods and services before any expenses are taken into account.

O

P

  • Past due

    Past due refers to any outstanding payment that has not been paid within a stated due date.

    • Here’s how to avoid difficult conversations with customers on overdue invoices: https://www.chaserhq.com/blog/how-to-avoid-difficult-conversations-with-customers-on-overdue-invoices
  • Payment portal

    A Payment Portal is a unique part of the Chaser credit control platform that allows our customers to offer their clients the widest and easiest range of payment options.

    Every invoice and invoice reminder sent out by our credit control software includes a link to a unique Payment Portal that contains all of the relevant payment details as well as a record of the customer’s total outstanding invoices to facilitate timely payment.

    Our Payment Portal supports a wide range of payment options alongside the normal credit and debit card options, to give your customers the greatest chance to make a prompt payment.

  • Payment processing

    The process and service that automates payment transactions between shoppers and merchants.

  • Payment terms

    Always document your payment terms in writing and make sure all terms are agreed to and understood. Make sure each phone call, text, or email is documented, so there is no confusion. Some businesses offer incentives for prompt payments, a smart move if you can manage it.

  • Per Annum

    Per annum is a Latin finance term that translates to “per year”.

  • Pro forma

    Pro forma refers to any document that is provided as a courtesy, is simply a formality, or only satisfies the minimum requirements. The translation of the Latin words literally means "for the sake of form".

  • Pro-forma invoice

    This is an invoice issued to the buyer prior to the release of goods or service. It is not shown in the accounts until it has been paid.

  • Profession and itemised invoicing

    Always send a professional and itemised invoice. Make sure payment terms and banking details are visible to avoid any back and forth.

  • Profit (loss)

    The income remaining after deduction of expenses. In the case of loss, the remaining expenses once income has been exhausted.

  • Profit and loss statement

    An organisation's financial statement listing net income, revenue and expenses over a specific period.

  • Prompt Payment Code

    The original Prompt Payment Code, which around 3000 large companies signed up to, obliged businesses to pay any company with less than 50 employees within 60-days of receiving an invoice.

    Despite these measures, the government estimates that around £23.4 billion worth of late invoices have not been paid to SMEs in the UK. This vast sum of money significantly impacts both the cash flow and, ultimately, causes the closure of around 50,000 businesses every year.

    To rectify this situation, the government has put more power in the hands of SME owners to charge interest on late payments.

  • Proxy

    When a creditor is unable to attend a meeting of the creditors, a third party will be assigned a proxy to attend and vote on their behalf.

  • Purchasing power parity

    Used during international trade, purchasing power parity is a macroeconomic metric that is used to estimate the correct exchange rate needed to create equal purchasing power in different currencies, based on a "basket of goods" approach.

R

  • Receivables

    This is what the company expects to receive in the form of monetary obligations owed. These include any outstanding debts or incomplete transactions and are entered into the company’s balance sheet.

  • Red flag

    In finance terms, a red flag often refers to potential issues with, or events that have an impact on, a company’s or individual’s credit resting.

  • Return on equity

    Often shortened to ROE, a return on equity is a finance term that refers to the amount of net income that is returned as a percentage of the equity belonging to the shareholders.

  • Return on investment

    A return on investment, or ROI, is a comparison of the potential return or loss of an investment in comparison to the amount of money invested.

  • Risk

    In financial terms, risk specifically refers to the chance that an investment’s actual return will differ from its expected return.

S

  • Society for Worldwide Interbank Financial Telecommunications

    The Society for Worldwide Interbank Financial Telecommunications, more commonly known as SWIFT, is a cooperative financial service that supplies secure messaging services and payment interface software to a huge range of financial institutions around the world.

  • Statement of accounts

    Or a statement as it often is called, is a document that includes all sales and financial transactions between a buyer and seller within a given period of time. Such statements are often used as a tool to remind clients of their outstanding balance.

    By using Chaser’s accounts receivable software to manage your credit control, you can easily set up automatic statements to be sent to your clients once a month.

    Chaser’s Payment Portal makes use of SWIFT to offer the largest number of potential payment options, giving our clients the best possible chance of being paid promptly.

T

  • Terms and conditions

    This is the contractual agreement a buyer enters into when purchasing goods or services.

  • Third party collector

    Collectors working for a collection agency that collects debt on behalf of a creditor.

U

  • Uncollectible accounts

    More colloquially known as bad debt, uncollectible accounts refers to loans, outstanding invoices, and other debts that are judged to have little or no chance of being paid.

    These debts might become unrecoverable for a number of reasons, including the debtor going bankrupt or the creditor not being able to find the debtor.

  • Unsecured creditor

    This is a creditor who is owed money but has no security for the debt. Also known as a trade creditor.

V

  • VAT

    An acronym for value-added tax, VAT is a form of sales tax, meaning that it is levied at the point where goods or services are being paid for.

W

  • Waiver

    A creditor may waive late payment fees in order to agree an amicable settlement for an outstanding debt.

  • Warranty

    A promise or covenant offered by a seller to the purchaser guaranteeing the goods or services are as described and the remedies available in the event of default.

  • Webinar

    A webinar refers to an online-only seminar. Chaser hosts a range of webinars on a regular basis to help our users understand and overcome common problems associated with accounts receivable, credit controls, and debt collections.

  • Write-off

    See charge-off.