Invoices are important in business, but understanding all the terms can be confusing. In this guide, we’ll break down key invoice terms in easy-to-understand language. Whether you’re a business owner or just curious about finance, this resource will help you navigate the world of invoices with clarity.
Invoice Date
The invoice date is the date when the invoice is issued to the buyer. For example, if goods are shipped on May 1 and the invoice is issued on May 5, the invoice date is May 5.
Invoice Number
An invoice number is a unique identifier assigned to each invoice for tracking and reference purposes. For instance, invoice number 001234 may be assigned to the first invoice issued by a business in a given year.
Invoice Total
The invoice total is the sum of all charges listed on the invoice, including the cost of goods or services, taxes, and any applicable fees. For example, if an invoice includes $500 for services, $50 for shipping, and $25 for taxes, the invoice total would be $575.
Invoice Due Date
The invoice due date is the date by which payment must be made to the seller. For example, if an invoice is issued on May 1 with payment terms of “Net 15,” the invoice due date would be May 16.
Payment Method
The payment method refers to the manner in which payment is made, such as cash, check, credit card, or electronic transfer. For example, a customer may choose to pay an invoice by mailing a check or submitting payment online via credit card.
Net 30
This term indicates that the payment is due within 30 days from the invoice date. For example, if an invoice is dated May 1 with “Net 30” terms, the payment should be made by May 31.
Due on Receipt
With this term, payment is expected immediately upon receipt of the invoice. For instance, if you receive an invoice with “Due on Receipt” on May 1, you’re expected to pay it promptly upon receipt.
Payment in Advance
This means that the payment is required before goods or services are provided. For example, a consultant might request payment in advance before starting a project.
Payment on Delivery
In this scenario, the payment is made at the time of delivery of goods or completion of services. For instance, when you order pizza for delivery, you pay the delivery person upon receiving the pizza.
Net 60
Similar to Net 30, but indicating a payment due within 60 days from the invoice date.
Net 90
Again, similar to Net 30, but indicating a payment due within 90 days from the invoice date.
1/10 Net 30
This means that a 1% discount is offered if payment is made within 10 days; otherwise, the full amount is due within 30 days from the invoice date.
EOM (End of Month)
Payment is due at the end of the month following the invoice date. For example, if an invoice is dated May 15 with “EOM” terms, payment is due by the end of May.
COD (Cash on Delivery)
Payment is made at the time of delivery of goods. For instance, when you order something online and choose the COD option, you pay the delivery person upon receiving the package.
Partial Payment
This refers to making a payment that covers only a portion of the total invoice amount. For example, if the total invoice amount is $1000, you might make a partial payment of $500 and pay the remaining $500 later.
Progress Payment
This term is used in projects where payment is made as work progresses. For example, in construction projects, payments may be made at various stages of completion, such as after the foundation is laid or after the framing is complete.
Retainer Fee
A retainer fee is a prepayment for services to secure the availability of a service provider. For instance, a lawyer may require a retainer fee upfront to represent a client throughout a legal matter.
Installment Payment
With installment payments, the total amount due is divided into smaller, regular payments over a specified period. For example, a furniture store might offer a payment plan where customers can pay for their purchase in monthly installments.
Milestone Payment
Payments made upon reaching specific milestones or objectives in a project. For instance, in software development, a milestone payment might be made after the completion of a prototype or after testing is successfully completed.
Prepayment
This refers to making a payment before the goods or services are provided. For example, a customer might prepay for a subscription service for the upcoming month.
Down Payment
A down payment is a partial payment made upfront before receiving goods or services. For example, when purchasing a car, a buyer might make a down payment before financing the rest of the purchase.
Final Payment
The final payment is the last payment due to complete a transaction. For instance, in a home renovation project, the final payment is made after all work is completed and approved by the customer.
Balloon Payment
A large, final payment that settles a debt in full at the end of the loan term. For example, in a balloon mortgage, the borrower makes smaller monthly payments throughout the loan term and a large balloon payment at the end.
Split Payment
This involves dividing the total invoice amount into multiple payments. For example, a customer might split a large invoice into two or more payments to manage cash flow.
Deferred Payment
Deferred payment allows the buyer to postpone payment to a later date, typically with added interest or fees. For example, a retailer might offer customers the option to buy now and pay later with deferred payment terms.
Immediate Payment
Immediate payment requires the recipient to pay the invoice without delay. For example, when purchasing goods online, immediate payment is typically required at the time of checkout.
Early Payment Discount
This term offers a discount to the buyer for paying the invoice before the due date.
For example, a vendor might offer a 2% discount if payment is made within 10 days instead of the standard 30 days.
Late Payment Fee
A late payment fee is charged when the invoice is not paid by the due date. For instance, a credit card company may charge a late payment fee if the minimum payment is not received by the specified deadline.
Interest on Overdue Invoices
Interest charged on invoices that are not paid by the due date. For example, if a customer fails to pay an invoice on time, the supplier may charge interest on the overdue amount until it is paid.
Recurring Payment
A payment that is made regularly at fixed intervals, such as weekly, monthly, or annually. For example, subscription services often require recurring payments for continued access to the service.
Reciprocal Payment
Reciprocal payment occurs when two parties agree to exchange goods or services of equal value without the exchange of money. For example, a graphic designer might offer to design a website in exchange for marketing services from another business.
Periodic Payment
Payments made at regular intervals, such as monthly or quarterly. For instance, rent payments are often made periodically on a monthly or quarterly basis.
Lump Sum Payment
A single, large payment made in full for a transaction or debt. For example, an insurance company might offer a lump sum payment to settle a claim instead of making payments over time.
Escrow Payment
A payment held by a third party, typically in a trust account, until certain conditions are met. For example, in a real estate transaction, the buyer’s earnest money deposit may be held in escrow until the sale is finalized.
Invoice Factoring
Invoice factoring involves selling accounts receivable to a third-party financial company at a discount. For example, a business might sell its unpaid invoices to a factoring company to receive immediate cash flow.
Letter of Credit
A letter of credit is a financial instrument issued by a bank guaranteeing payment to a seller on behalf of the buyer. For instance, in international trade, a letter of credit ensures that the seller will receive payment upon fulfilling the terms of the sale.
Payment Plan
A payment plan allows a debtor to repay a debt in installments over time. For instance, a hospital may offer a payment plan to patients to pay off medical bills over several months.
Proforma Invoice
A proforma invoice is a preliminary bill of sale sent to a buyer before the goods are delivered or services are rendered. For example, a proforma invoice may be used to provide a cost estimate or outline terms of a transaction.
Purchase Order
A purchase order is a document issued by a buyer to a seller to request goods or services and specify terms of the transaction. For example, a retailer may send a purchase order to a supplier to order inventory for restocking.
Bill of Sale
A bill of sale is a legal document that transfers ownership of goods or property from a seller to a buyer. For instance, a bill of sale is used when selling a vehicle to document the transfer of ownership and provide proof of purchase.
Invoice Aging
Invoice aging refers to the analysis of unpaid invoices based on their age to track overdue payments and manage accounts receivable. For example, an accounts receivable report may categorize invoices as current, 30 days past due, 60 days past due, etc.
Invoice Currency
Invoice currency is the currency in which the invoice amount is denominated. For example, an invoice issued by a U.S. company may be denominated in U.S. dollars, while an invoice issued by a European company may be denominated in euros.
Payment Schedule
A payment schedule outlines the timing and amounts of payments to be made over a specified period. For example, a construction contract may include a payment schedule that specifies when progress payments are due based on project milestones.
Overdue Payment Reminder
An overdue payment reminder is a communication sent to a customer reminding them that their payment is past due and requesting prompt payment. For example, a supplier may send an email reminder to a customer whose invoice is overdue by 15 days.
Invoice Verification
Invoice verification is the process of reviewing invoices to ensure accuracy and compliance with contractual terms before approving them for payment. For example, a accounts payable department may verify invoices by comparing them to purchase orders and delivery receipts.
Invoice Processing
Invoice processing is the series of steps involved in receiving, reviewing, and approving invoices for payment. For example, invoice processing may include data entry, invoice matching, approval workflows, and payment processing.
Invoice Financing
Invoice financing is a form of financing in which a business uses its unpaid invoices as collateral to obtain immediate cash from a lender. For example, a business may use invoice financing to improve cash flow by receiving immediate payment for outstanding invoices.
Invoice Management
Invoice management is the process of organizing and tracking invoices from creation to payment. For example, an accounts payable department may use invoice management software to centralize invoice processing, automate workflows, and monitor payment status.
Invoice Tracking
Invoice tracking is the process of monitoring the status of invoices from issuance to payment.
For example, a business may track invoices using a spreadsheet or accounting software to ensure timely payment and follow up on overdue invoices.
Invoice Dispute
An invoice dispute occurs when the buyer disagrees with the charges or terms listed on the invoice and raises concerns or requests corrections.
For example, a customer may dispute an invoice if they believe they were overcharged for a product or service.
Invoice Adjustment
An invoice adjustment is a change made to an invoice to correct errors, update information, or reflect changes in the terms of the transaction. For example, if a customer returns a defective product, the seller may issue an invoice adjustment to remove the charge for the returned item.
Invoice Approval
Invoice approval is the process of reviewing and authorizing invoices for payment. For example, in a large organization, invoices may require approval from multiple departments or managers before they can be paid.
Invoice Automation
Invoice automation involves using technology to streamline and automate the invoice processing workflow, from receipt to payment.
For example, businesses may use optical character recognition (OCR) technology to extract data from paper invoices and automate data entry.
Invoice Collection
Invoice collection is the process of following up with customers to ensure timely payment of outstanding invoices.
For example, a business may send reminder emails or make phone calls to customers with overdue invoices to request payment.
Invoice Reconciliation
Invoice reconciliation is the process of comparing invoices to other documents, such as purchase orders or contracts, to ensure accuracy and resolve discrepancies.
For example, a company may reconcile invoices with purchase orders to verify that the goods or services were received as ordered.
Invoice Settlement
Invoice settlement refers to the process of resolving outstanding invoices by making payment or reaching a mutually agreed-upon resolution.
For example, a supplier and customer may negotiate a settlement for disputed invoices to resolve the issue amicably.
Invoice Overpayment
An invoice overpayment occurs when the buyer pays more than the amount owed on the invoice. For example, if a customer accidentally sends a double payment for an invoice, they may request a refund for the overpaid amount.
Invoice Underpayment
An invoice underpayment occurs when the buyer pays less than the amount owed on the invoice. For example, if a customer deducts a discount or disputes charges without justification, they may underpay the invoice.
Invoice Batch Processing
Invoice batch processing is the simultaneous processing of multiple invoices in a group or batch to improve efficiency and reduce manual effort.
For example, businesses may use batch processing software to automate the processing of invoices received in large volumes.
Invoice Compliance
Invoice compliance refers to adhering to regulatory requirements, contractual terms, and internal policies when creating, processing, and managing invoices.
For example, a company may have specific invoice formatting requirements to ensure compliance with tax laws and accounting standards.
Final Thoughts,
Understanding invoice terms is crucial for effective financial management. By familiarizing yourself with these terms, you can better manage your invoices, negotiate payment terms, and avoid misunderstandings with clients or suppliers. Stay informed and empowered in your business dealings with a solid grasp of invoice terms.
Additional Resources:
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- AccrueMe Helps Amazon Sellers Access Funding
