Glossary

AR & billing glossary

Plain-English definitions of accounts receivable, billing, and cash flow terms, from foundational concepts to the specific vocabulary used in consulting, agency, AEC, and IT services billing.

Section A

Core AR & billing terms

Accounts receivable (AR)

Money owed to a business by clients for goods or services already delivered but not yet paid for.

Invoice

A formal request for payment issued to a client, stating the amount owed, the work it covers, and the due date.

Billing cycle

The recurring period, weekly, monthly, or per milestone, on which a business generates and sends invoices.

Payment terms

The agreed conditions under which an invoice must be paid, including the due date and any discounts or penalties.

Net 30 / Net 45 / Net 60

Payment terms requiring full payment within 30, 45, or 60 days of the invoice date.

Due date

The specific date by which an invoice must be paid according to its stated terms.

Credit terms

The terms under which a seller extends payment flexibility to a buyer instead of requiring payment on delivery.

Remittance

The payment sent by a client to settle an invoice, along with any details identifying which invoice it covers.

Cash application

The process of matching an incoming payment to the specific invoice or invoices it is intended to settle.

Statement of account

A summary document listing all invoices, payments, and the current balance for a given client over a period.

Credit memo

A document reducing the amount a client owes, typically issued to correct an overcharge or process a refund.

Debit memo

A document increasing the amount a client owes, typically issued to correct an undercharge.

Write-off

Removing an invoice from a firm's books as uncollectible after collection efforts have been exhausted.

Bad debt

Revenue that was earned and invoiced but is deemed unlikely to ever be collected.

Section B

Collections & follow-up

Dunning

The structured process of communicating with a client to collect an overdue payment.

Dunning sequence

A predefined series of reminder messages sent at set intervals before and after an invoice's due date.

Reminder cadence

The specific schedule and tone progression a firm uses for payment reminders, from courtesy notice to escalation.

Escalation

Moving a slow-paying account from routine automated reminders to direct involvement from an account owner or partner.

Past due / overdue invoice

An invoice that has not been paid by its stated due date.

Delinquent account

A client account with one or more invoices significantly overdue, often 60 days or more.

Promise to pay

A client's stated commitment to pay a specific amount by a specific date, typically logged during a collections call.

Payment plan

An agreed schedule allowing a client to pay an outstanding balance in installments rather than in full.

Late fee

A penalty charge applied to an invoice paid after its due date, usually a flat fee or a percentage of the balance per month.

Demand letter

A formal, often legally worded, written notice demanding payment before further action such as collections or legal referral.

Third-party collections

Referring an unpaid account to an outside collections agency after internal efforts have failed.

Section C

AR aging & credit risk

AR aging report

A report grouping unpaid invoices by how long they have been outstanding, typically in 30-day buckets.

Aging bucket

A specific time range in an aging report, such as current, 1 to 30 days overdue, 31 to 60, and beyond.

Credit risk

The risk that a client will fail to pay an invoice in full or on time.

Credit check

A review of a prospective client's payment history and financial standing before extending credit terms.

Credit limit

The maximum outstanding balance a firm is willing to extend to a given client at one time.

Trade credit

Credit extended by a seller to a buyer, allowing payment after goods or services are delivered.

Concentration risk

The exposure created when a large share of total receivables is owed by a small number of clients.

Days beyond terms (DBT)

The average number of days invoices are paid after their stated due date, isolating lateness from the terms themselves.

Allowance for doubtful accounts

A reserve set aside on a firm's books to account for receivables expected to become bad debt.

Bad debt expense

The accounting entry recognizing the cost of receivables that have been written off as uncollectible.

Section D

Cash flow & working capital

Days sales outstanding (DSO)

The average number of days it takes a firm to collect payment after a sale, calculated as accounts receivable divided by total credit sales, times the number of days in the period.

Cash conversion cycle (CCC)

The total time it takes a business to convert resources spent into cash collected from sales, combining DSO, days inventory outstanding, and days payable outstanding.

Days payable outstanding (DPO)

The average number of days a business takes to pay its own suppliers.

Working capital

The capital available for day-to-day operations, calculated as current assets minus current liabilities.

Cash flow forecast

A projection of expected cash inflows and outflows over a future period, used to anticipate shortfalls.

Carrying cost of receivables

The financial cost of having capital tied up in unpaid invoices instead of available for use elsewhere.

Opportunity cost

The return a firm forgoes by having cash tied up in receivables instead of invested or deployed elsewhere.

Invoice factoring

Selling unpaid invoices to a third party at a discount in exchange for immediate cash.

Invoice financing

Borrowing against the value of outstanding invoices while retaining ownership and collection responsibility.

Line of credit

A flexible borrowing facility a business can draw on to bridge cash flow gaps, including those caused by slow collections.

Section E

Accounting & revenue recognition

Accrual accounting

An accounting method recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands.

Cash basis accounting

An accounting method recognizing revenue and expenses only when cash is actually received or paid.

Revenue recognition

The accounting principle determining when earned revenue can formally be recorded on a firm's books.

Deferred revenue (unearned revenue)

Payment received from a client for work that has not yet been performed.

Work in progress (WIP)

Work that has been completed or partially completed but has not yet been invoiced to the client.

Percentage of completion method

An accounting method that recognizes revenue on a long or phased project in proportion to the work completed, rather than only at the end.

Overbilling

A state where a firm has invoiced a client for more than the value of work actually completed to date.

Underbilling

A state where a firm has completed more work than it has invoiced, meaning cash is lagging behind earned value.

Contract asset / contract liability

Balance sheet entries representing, respectively, work performed but not yet billed, and payment received but not yet earned.

Section F

Billing models & contract structures

Milestone billing

Invoicing a client incrementally as specific, predefined project checkpoints are completed.

Retainer billing

A recurring fee billed on a fixed schedule in exchange for ongoing access to a firm's services.

Project billing

Billing tied to the completion or delivery of a defined, often one-time, body of work.

Fixed fee billing

A single agreed price for a defined scope of work, regardless of the actual hours or cost incurred.

Time and materials billing

Billing based on actual hours worked and materials or expenses incurred, typically at agreed rates.

Recurring billing

Any billing structure that generates an invoice automatically on a repeating schedule.

Progress billing

Invoicing based on the percentage of a project completed at a given point, common in construction and design.

Prorated billing

Adjusting an invoice amount to reflect a partial billing period, such as a mid-cycle contract start.

Scope creep

Work added to a project beyond its original agreed scope, often without a corresponding adjustment to price or billing.

Statement of work (SOW)

A document defining the specific deliverables, timeline, and terms of a given engagement.

Engagement letter

A signed agreement outlining the scope, fees, and terms of a professional services relationship.

Master services agreement (MSA)

An overarching contract establishing the general terms of a relationship, under which individual statements of work are executed.

Purchase order (PO)

A document issued by a buyer authorizing a specific purchase, often required before a seller can invoice.

Section G

Metrics & KPIs

Average collection period

Another term for DSO; the average time it takes to collect payment after a sale.

Collection effectiveness index (CEI)

A metric measuring what percentage of receivables collectible in a period was actually collected.

AR turnover ratio

A measure of how many times, on average, a firm collects its receivables balance over a given period.

Percent current

The share of total receivables that is not yet past due, a core health indicator on an aging report.

Best possible DSO

The DSO a firm would have if every client paid exactly on the stated terms, used as a benchmark against actual DSO.

Utilization rate

The percentage of a professional's available hours that are billed to clients rather than spent on internal or non-billable work.

Realization rate

The percentage of billed value that is actually collected, accounting for write-offs and discounts.

Section H

Consulting firms

Billable hours

Hours of work that can be charged directly to a client under the engagement's billing terms.

Not-to-exceed (NTE)

A contract cap stating the maximum amount that can be billed for a given scope, regardless of hours worked.

Fee cap

A ceiling placed on total fees for an engagement or phase, often used alongside time and materials billing.

Section I

Marketing & creative agencies

Agency of record (AOR)

The designated agency responsible for a client's ongoing marketing or creative work, typically under a retainer.

Media buy / media spend

Client funds spent on advertising placements, often passed through an agency's invoicing.

Pass-through cost

A cost incurred on a client's behalf, such as media spend or a subcontractor fee, billed to the client at or near cost.

Markup

The percentage or amount added to a pass-through cost or base rate to generate the agency's margin.

Value-based pricing

Pricing an engagement based on the business value delivered rather than hours worked or costs incurred.

Section J

Architecture & engineering (AEC)

Schematic design (SD)

The earliest architectural design phase, establishing the project's general scope, scale, and relationships.

Design development (DD)

The phase where architectural, structural, and mechanical systems are coordinated into a unified, detailed design.

Construction documents (CD)

The fully detailed drawing set and specifications used for permitting and construction bidding.

Construction administration (CA)

The architect's or engineer's ongoing role during actual construction, typically billed monthly.

Basic services

The standard scope of architectural or engineering services defined in a contract, as distinct from additional services.

Additional services

Work outside the originally contracted scope, billed separately from basic services.

Reimbursable expenses

Out-of-pocket costs, such as travel or printing, billed back to the client in addition to the professional fee.

Change order

A formal amendment to a construction contract altering scope, cost, or schedule.

Substantial completion

The point at which a construction project is complete enough for its intended use, often triggering final billing milestones.

Section K

IT & technology consulting

Staff augmentation

Supplying individual consultants to work under a client's direction, typically billed against approved timesheets.

Managed service provider (MSP)

A firm that remotely manages a client's IT infrastructure under an ongoing contract, typically billed as a recurring retainer.

Timesheet approval

The step where a client or manager confirms logged hours are accurate before they can be invoiced.

Bill rate / pay rate

The rate charged to the client for a consultant's time (bill rate) versus the rate paid to the consultant (pay rate); the difference is the firm's margin.

Vendor management system (VMS)

A platform large clients use to manage and approve staffing vendor invoices and timesheets.

Service level agreement (SLA)

A defined commitment on response time, uptime, or performance that an MSP or IT vendor agrees to meet.

Professional services automation (PSA)

Software used by consulting and IT firms to manage projects, time tracking, and billing in one system.

RMM (remote monitoring and management)

Software MSPs use to monitor and manage client devices remotely, often tied directly to billing for device counts.

Section L

Customer / buyer-side (AP) terms

Accounts payable (AP)

The buyer-side counterpart to AR; money a business owes to its own vendors and suppliers.

Three-way match

An AP control process verifying that a purchase order, receipt of goods or services, and the invoice all agree before payment is released.

Procurement

The process an organization uses to request, approve, and purchase goods or services, often the source of invoice approval delays.

Payment run

A batch of vendor payments an organization processes together on a scheduled date.

Remittance advice

A notice sent by a payer to a payee specifying which invoices a payment is intended to settle.

Early payment discount

A discount offered for paying an invoice before its due date, commonly expressed as "2/10 Net 30" (2 percent off if paid within 10 days, full amount due in 30).

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