Invoicing Glossary: Invoice and Payment Terms Explained

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2/10 net 30Guide: A 2% discount if the client pays within 10 days, with the full amount due in 30 days.

Accounts receivable: Accounts receivable (AR) is the money customers owe a business for goods or services it has already delivered and invoiced but has not been paid for yet.
Accounts receivable aging (AR aging): Accounts receivable aging groups a business's unpaid invoices by how long they have been overdue, usually in 30-day buckets, to show what to chase first.

Bad debt: Bad debt is money a customer owes that a business no longer expects to collect, such as an unpaid invoice it writes off after collection attempts have failed.

Cash in advance (CIA)Guide: Another name for payment in advance: the full amount is paid before the order is fulfilled.
Cash on delivery (COD)Guide: A payment term requiring payment at the moment goods are delivered or the work is handed over.
Credit note: A credit note is a document a seller issues to reduce or cancel the amount on an invoice already sent, for example after a billing error, refund or return.

Days sales outstanding (DSO): Days sales outstanding (DSO) is the average number of days a business takes to get paid after invoicing, worked out from receivables and sales for a period.
Debit note: A debit note is a document that increases the amount a client owes after an invoice was issued, for example when the original invoice undercharged them.
Due upon receiptGuide: A payment term meaning the invoice is due as soon as the client receives it.
Dunning: Dunning is the process of contacting customers in a planned sequence to collect overdue payments, from a polite reminder to a final notice before collections.

EOM (end of month)Guide: A payment term that counts the due date from the end of the month the invoice was issued in.

Interest on late payment: Interest on late payment is a charge that builds up on an overdue invoice balance for each day or month it stays unpaid, at a rate set by contract or by law.
Invoice factoring: Invoice factoring is when a business sells its unpaid invoices to a factoring company for cash now, at a discount, and the factor collects from the clients.

Late fee: A late fee is a charge added to an invoice when the client pays after the due date. It is a flat amount or a percentage, agreed before the work starts.
Line item: A line item is a single row on an invoice or quote that describes one product or service, with its quantity, unit rate and the total amount for that row.

Net 7 and net 10Guide: Payment terms meaning the full amount is due 7 or 10 days after the invoice date.
Net 15Guide: A payment term meaning the full amount is due 15 days after the invoice date.
Net 30Guide: A payment term meaning the full amount is due 30 days after the invoice date.
Net 45Guide: A payment term meaning the full amount is due 45 days after the invoice date.
Net 60Guide: A payment term meaning the full amount is due 60 days after the invoice date.

Partial payment: A partial payment is a payment that covers only part of an invoice's total. The invoice stays open and the remaining balance is due until it is paid in full.
Payment in advance (PIA)Guide: A payment term requiring the client to pay before work starts or goods ship.
Payment termsGuide: The conditions on an invoice that say when and how the client must pay, such as net 30 or due upon receipt.
Proforma invoice: A proforma invoice is a preliminary bill sent before work starts or goods ship. It shows the expected price so the buyer can approve or prepay the purchase.
Purchase order (PO): A purchase order (PO) is a document a buyer sends a supplier to authorize a purchase. It lists the items, the agreed price and a PO number for the invoice.

Recurring invoiceGuide: An invoice that is created and sent automatically on a set schedule, such as every month, for ongoing work.
Remittance advice: A remittance advice is a note a customer sends with or after a payment to tell the supplier which invoices it covers and how much was paid against each one.
Retainer fee: A retainer fee is a payment a client makes in advance, often every month, to reserve a freelancer's or consultant's time or services for an agreed period.

Statement of account: A statement of account is a summary sent to one client that lists every invoice, payment and credit over a period, ending with the balance still owed.

Tax invoice (VAT invoice): A tax invoice is an invoice with the details a country's tax authority requires, such as the VAT or GST number and amount, so the buyer can reclaim the tax.