AR & collections glossary

Accounts receivable is the total amount customers owe a business for goods or services already delivered but not yet paid for.

ACH is a US electronic payments network for bank-to-bank transfers, commonly used for direct deposit, bill pay, and recurring business payments.

An AR aging report groups unpaid invoices by how overdue they are, typically in 30-day buckets, to show where collection risk sits.

AR financing is a loan or line of credit secured by a business's unpaid invoices, without selling the invoices themselves.

AR turnover ratio is the number of times, on average, that a business collects its accounts receivable balance during a period.

Bad debt is the portion of a business's receivables that is judged unlikely to be collected and is removed from AR as a loss.

The cash conversion cycle is the number of days a business takes to turn investments in inventory and operations back into cash from customers.

A charge-off is when a creditor writes a debt off its books as unlikely to be collected, though the debt itself usually still legally exists.

A collections agency is a third-party company hired to pursue payment on debts owed to another business.

A collections letter is a written notice to a customer about a past-due balance, typically escalating in tone across a sequence of letters.

A contingency fee is a payment model where the collector keeps a percentage of whatever they recover and charges nothing if they recover nothing.

A credit policy is a written set of rules defining who a business will extend credit to, on what terms, and how overdue balances will be handled.

A cure period is a defined window of time during which a party can fix a default, such as a missed payment, before the other party can terminate or escalate.

A demand letter is a formal written request for payment or action, typically signaling that litigation may follow if the issue is not resolved.

DSO is the average number of days it takes a business to collect payment after making a sale on credit.

Dunning is the process of systematically contacting customers to request payment on past-due invoices.

The FDCPA is a US federal law that restricts how third-party debt collectors may contact consumers about personal debts.

Invoice factoring is selling unpaid invoices to a third party at a discount in exchange for immediate cash.

A lockbox is a bank-operated mailing address that receives customer payments and deposits them directly into a business's account.

Net 30 means the full invoice amount is due 30 calendar days after the invoice date.

Net 60 means the full invoice amount is due 60 calendar days after the invoice date.

Net 90 means the full invoice amount is due 90 calendar days after the invoice date.

A past-due invoice is any invoice that has gone unpaid after the due date stated in the original agreement.

A payment plan is a written agreement that lets a customer pay an overdue balance in scheduled installments instead of all at once.

A right to cure is a borrower's or party's statutory or contractual right to fix a default, usually by bringing payments current, before the other side can enforce a remedy.

A debt's statute of limitations is the legal time limit, set by state law, during which a creditor can sue to collect on an unpaid debt.

The TCPA is a US federal law that limits automated phone calls, prerecorded messages, and certain text messages to consumers.

The UCC is a harmonized set of US state laws governing commercial transactions, including sales of goods and secured lending.

A voluntary surrender is when a debtor willingly returns collateral, such as a vehicle, to the lender rather than being forced through repossession.

A write-off is the accounting action of removing an uncollectible invoice from accounts receivable and recognizing it as a loss.