Definitions of the 60 invoicing, billing and payment terms small businesses and freelancers actually meet. Each one answers in a sentence or two, with no jargon used to explain jargon.
An invoice is a document a seller sends a buyer requesting payment for goods or services already delivered. It lists what was supplied, the amount owed, the payment terms and the due date. An invoice is a demand for payment, which separates it from a quote or a receipt.
An invoice number is the unique reference assigned to each invoice, used to track it and to match payments against it. Numbers must be sequential and never reused, because tax authorities and auditors rely on the sequence to show that no invoice has been removed.
A commercial invoice is the invoice used for customs on an international shipment, declaring the goods, their value and their origin so duty can be assessed. Unlike a proforma invoice it is a real demand for payment, issued once the goods actually ship.
An interim invoice bills part of a larger project before it is finished, usually at an agreed stage or date. It keeps cash coming in during long work. The final invoice then settles the remaining balance.
A final invoice is the last invoice on a project, billing the remaining balance after any deposit and interim invoices are deducted. It should show those earlier amounts explicitly, so the customer can see how the total was reached.
A proforma invoice is a preliminary bill sent before goods or services are delivered, showing what the final invoice will contain. It is not a demand for payment and does not create a tax liability or an account receivable. It is commonly used for customs, prepayment and internal approvals.
A quote is a fixed price offered to a customer for specific work, valid for a stated period. Once the customer accepts it, the price is normally binding on the supplier. A quote commits to a number in a way an estimate does not.
An estimate is an approximate price for work whose final cost is not yet certain. It is a considered forecast rather than a commitment, and the final invoice may differ. Estimates suit work where scope, materials or hours cannot be fixed in advance.
A receipt is proof that payment has been made. It is issued after money changes hands, whereas an invoice is issued before, to request it. A receipt closes a transaction; an invoice opens one.
A credit note is a document that reduces the amount a customer owes on an invoice already issued, used for returns, overcharges, cancellations or agreed discounts. It corrects the record without deleting or editing the original invoice, which keeps the audit trail intact.
A debit note increases the amount a customer owes after an invoice has been issued, typically when goods were undercharged or extra costs arose. It is the mirror image of a credit note and, like one, adjusts the balance without altering the original invoice.
A purchase order, or PO, is a document a buyer issues to a seller committing to buy specific goods or services at agreed prices. The buyer creates it before the work; the seller invoices against it afterwards. It authorises the spend on the buyer side.
A purchase order number is the reference a buyer assigns to a purchase order. Many companies will not pay an invoice unless it quotes the matching PO number, because their accounts payable system uses it to match the invoice to an approved commitment.
A statement of account is a summary of every invoice, payment and credit on a customer account over a period, showing the closing balance. It is a running total, not a demand for payment, which is what distinguishes it from an invoice.
A packing slip is a document shipped with goods listing what is in the box, with quantities but usually no prices. It lets the recipient check the delivery against the order. The invoice, which carries the prices, is sent separately.
Remittance advice is a note a buyer sends a supplier confirming which invoices a payment covers. When one payment settles several invoices, it is what lets the supplier apply the money to the right ones instead of guessing.
A remittance address is the address a supplier asks customers to send payment to, printed on the invoice. It is often different from the trading address, because payments may go to a bank lockbox, a finance office or a factoring company.
Payment terms are the conditions under which an invoice must be paid, covering the deadline, accepted methods, any early payment discount and any late fee. They belong on the invoice itself, because terms agreed verbally are difficult to enforce.
Net 30 means the full invoice amount is due 30 days after the invoice date. Net 7, Net 14, Net 45 and Net 60 follow the same pattern. The number counts calendar days, not working days, unless the invoice says otherwise.
The term 2/10 net 30 means the buyer may deduct 2 percent if they pay within 10 days, and otherwise the full amount is due in 30. It is an early payment discount written in shorthand, used to pull cash in sooner.
Due upon receipt means payment is expected as soon as the customer receives the invoice, with no credit period. In practice most businesses treat it as due within a few days, so it is worth pairing with an explicit date to avoid ambiguity.
End of month terms, written EOM, mean payment is due at the end of the month in which the invoice was issued. A variant such as 30 days EOM means 30 days after that month end, which can be considerably longer than Net 30.
Cash on delivery, or COD, means the buyer pays when the goods arrive rather than on credit. It removes the risk of non-payment for the seller and is common for one-off customers and for buyers with no established credit history.
Cash in advance, or CIA, means the buyer pays in full before the seller ships or starts work. It is the strictest payment term and is normally used for new customers, custom work or export orders.
A deposit is a part payment taken before work begins, typically 20 to 50 percent, to cover materials and to confirm the customer is committed. The balance is invoiced on completion. Deposits are the standard defence against non-payment on project work.
Progress billing invoices a customer in stages as work is completed rather than in one payment at the end. Each stage is tied to a milestone or a percentage of completion. It keeps cash flowing on long projects and limits exposure if a project stops.
A retainer is a recurring fee a client pays to reserve an agreed amount of work each period, billed whether or not the full allocation is used. It gives the supplier predictable income and the client guaranteed availability.
An early payment discount is a small reduction, commonly 1 to 2 percent, offered if a customer pays before the due date. It trades a little margin for faster cash, and it is only worth offering if the cash flow gain exceeds the discount.
A late fee is a charge added to an overdue invoice, set either as a flat amount or a monthly percentage of the balance. To be enforceable it must be agreed in advance, normally in the contract and restated on the invoice.
A credit limit is the maximum a supplier will let a customer owe at any one time before further orders are held. It caps exposure to a single customer, which matters because one large unpaid balance can be harder to survive than several small ones.
A payment gateway is the service that processes card and online payments on an invoice, passing the money to the sellers account and charging a fee per transaction. Adding one to an invoice removes the step where a customer has to arrange a transfer themselves.
Credit terms are the overall arrangement under which a supplier lets a customer pay after delivery, covering the credit limit, the payment period and what happens when it is exceeded. Extending credit is effectively lending money, so it warrants the same care.
A tax invoice is an invoice that meets the legal requirements for the buyer to reclaim tax on the purchase. Requirements vary by country but generally include both parties tax registration numbers, the tax rate applied and the tax amount shown separately from the net amount.
VAT, value added tax, is a consumption tax charged at each stage of the supply chain, used across the UK, the EU and many other countries. Registered businesses charge it on sales, reclaim it on purchases and pay the difference to the tax authority.
GST, goods and services tax, is a consumption tax used in India, Australia, Canada, New Zealand, Singapore and elsewhere. In India it splits into CGST and SGST on sales within a state, and IGST on sales between states, based on the place of supply.
Sales tax is a tax added at the final point of sale to the end consumer, used in the United States and set at state and local level. Unlike VAT and GST it is charged only once, at the last step, rather than at every stage.
HSN codes classify goods and SAC codes classify services under Indias GST system. The correct code determines the tax rate, and GST invoices above the prescribed turnover thresholds must show it for every line item.
Reverse charge shifts responsibility for reporting tax from the seller to the buyer. The seller invoices without adding tax and states that reverse charge applies; the buyer accounts for it on their own return. It is common on cross border services.
E-invoicing means submitting invoice data to a government system in a prescribed format, which returns an identifier such as an IRN in India, rather than simply emailing a PDF. It is mandatory above set turnover thresholds in a growing number of countries.
A W-9 is a United States tax form on which a contractor or freelancer gives their taxpayer identification number to a business that pays them. The payer needs it to issue a 1099, so many will not process an invoice until the W-9 is on file.
Withholding tax is an amount a customer deducts from an invoice and pays directly to the tax authority on the suppliers behalf. The supplier receives less cash than the invoice total and claims the deducted amount as credit against their own tax bill.
Accounts receivable is the total a business is owed by its customers for invoices issued but not yet paid. It is money earned but not collected, and it is one of the few balance sheet figures that can be improved by better process alone.
An aging report groups unpaid invoices by how overdue they are, typically current, 1 to 30 days, 31 to 60 and over 90. It shows which debts are hardening and which customers need chasing first, ranked by risk rather than by size.
Dunning is the process of systematically reminding customers about overdue invoices, usually through a fixed sequence of messages that escalate over time. Automating it removes the awkwardness of chasing and is the single most effective way to shorten payment times.
Bad debt is an invoice a business has concluded it will never collect and writes off. Writing it off removes the amount from accounts receivable so the books reflect what is genuinely recoverable rather than what was once hoped for.
A partial payment is an amount that settles only part of an invoice, leaving a balance outstanding. The invoice stays open for the remainder. Recording partial payments against the original invoice keeps the customer balance accurate.
An overpayment is money received above the invoiced amount, whether through a duplicate payment or an error. It is normally held as a credit against the customer account and applied to the next invoice, or refunded on request.
A chargeback is a forced reversal of a card payment initiated by the cardholders bank after a dispute. The money is taken back from the merchant, usually with a fee, and the merchant must provide evidence to contest it.
Invoice factoring is selling unpaid invoices to a finance company at a discount to receive cash immediately instead of waiting for the customer to pay. It converts receivables into working capital, at a cost that is effectively an interest rate.
Invoice reconciliation is the process of matching payments received against the invoices they were meant to settle, so that every open balance is genuine. It catches short payments, duplicate payments and money applied to the wrong invoice.
Invoicing is the process of billing customers for work delivered: producing the invoice, sending it, tracking whether it has been paid and following up when it has not. It is the step between finishing work and being paid for it.
A recurring invoice is generated and sent automatically on a set schedule, such as monthly or annually, for ongoing work at a fixed price. It suits retainers, subscriptions and maintenance agreements, and it removes the risk of forgetting to bill.
Flat rate pricing charges one agreed price for a defined piece of work regardless of the hours it takes. The customer knows the cost in advance and the supplier keeps the gain from working efficiently, along with the risk of underestimating.
Hourly billing charges for time actually worked at an agreed rate. It suits open ended work where scope cannot be fixed, and it requires accurate time records, because the invoice has to be defensible line by line.
A billable expense is a cost incurred on a clients behalf and passed on to them, such as travel, materials or software bought for a project. It should be agreed in advance and shown separately on the invoice from the fee for the work.
Multi-currency invoicing means issuing invoices in the currency the customer expects while reporting in your own. It requires an exchange rate recorded at the invoice date, so the reported value stays consistent even when rates move before payment arrives.
A digital signature on an invoice or quote is an electronic mark that identifies the signer and shows the document has not been altered since signing. It lets a customer approve a quote without printing, signing and scanning it.
Self-billing is an arrangement where the customer produces the invoice on the suppliers behalf and sends it to them, common with large buyers and many small suppliers. Both parties must agree to it in advance, and tax rules impose specific conditions.
A purchase invoice is an invoice received from a supplier, recorded as a cost and a payable. The same document is a sales invoice to whoever issued it. The label depends on which side of the transaction you are on.
FOB, free on board, is a shipping term stating the point at which ownership and risk pass from seller to buyer. FOB origin means they pass when goods leave the sellers premises; FOB destination means they pass on arrival. It determines who bears loss in transit.
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