Invoicing & AR Glossary
Clear, accurate definitions of the invoicing, accounts receivable, and payments terms that show up on every invoice, contract, and finance dashboard.
Accounts Receivable
Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) is the average number of days a business takes to collect payment after a sale on credit. It is calculated as (Accounts Receivable ÷ Total Credit Sales) × Number of Days. A lower DSO means faster cash collection and healthier working capital.
Accounts Receivable Aging Report
An accounts receivable (AR) aging report is a financial document that groups unpaid customer invoices by how long they have been outstanding — typically Current, 1–30, 31–60, 61–90, and 90+ days. It is the primary tool for spotting collection risk and prioritizing follow-up.
Dunning
Dunning is the structured process of communicating with customers to collect overdue invoices. It typically combines automated email reminders, phone calls, and escalation letters at fixed intervals (e.g., 3, 7, 14, and 30 days past due) before referring the debt to collections.
Accounts Receivable
Accounts Receivable (AR) is the total money a business is owed by customers for goods or services delivered on credit but not yet paid. It appears as a current asset on the balance sheet and is one of the most important indicators of short-term cash flow health.
Bad Debt
Bad debt is an invoice that a business has determined is uncollectible and writes off as a loss. It typically occurs when a customer becomes insolvent, disputes the charge irrecoverably, or simply disappears. Bad debt expense reduces net income and is tax-deductible in most jurisdictions.
Invoicing
Net 30 Payment Terms
Net 30 means the full invoice amount is due 30 calendar days after the invoice date. It is the most common B2B payment term worldwide and signals normal credit terms — not '30 days from delivery' or '30 days from receipt' unless explicitly stated.
Proforma Invoice
A proforma invoice is a preliminary bill of sale sent to a buyer before goods or services are delivered. It is not a legal demand for payment and not used for accounting — it confirms price, terms, and quantities so the buyer can issue a purchase order or arrange financing/customs.
Commercial Invoice
A commercial invoice is the legally binding bill issued by a seller to a buyer after goods or services have been delivered. It is recorded in both parties' accounting systems, used for tax and customs, and serves as the formal demand for payment.
Credit Memo
A credit memo (or credit note) is a document a seller issues to reduce the amount a buyer owes on a previously issued invoice — for returns, overcharges, discounts applied after billing, or cancelled work. It is the accounting reverse of an invoice.
Invoice Due Date
The invoice due date is the calendar date by which a buyer must pay an invoice in full. It is calculated from the invoice date plus the agreed payment term (e.g., Net 30 = invoice date + 30 days). Missing this date triggers late-fee and dunning policies.