Glossary
The vocabulary of order-to-cash, with the formulas and the traps.
A report that groups open invoices by how long they have been outstanding or past due (for example current, 1–30, 31–60, 61–90 and 90+ days). The base view for deciding whom to chase first, though value and risk should shape priority as well as age.
A contra-asset estimate of receivables that will not be collected, set against gross AR. Under IFRS 9 and US CECL the estimate is based on expected, not just incurred, losses.
How many days, on average, receivables are being paid beyond their due date. The common shortcut is DSO minus best possible DSO, which isolates lateness from the effect of payment terms and sales mix.
Receivables judged uncollectable and removed from the balance, recognised as an expense or charged against the allowance for doubtful accounts. A write-off clears AR but is not collection, so keep it out of any measure of cash performance.
The DSO you would have if every customer paid exactly on the due date, so that only receivables not yet due remained open. Calculated as current (not yet due) AR divided by credit sales, multiplied by days in the period.
Matching incoming payments to the open invoices, credit memos and other items they settle, and posting the result to the ledger. Fast, accurate cash application keeps AR true, which collections and credit decisions depend on.
Days inventory outstanding plus days sales outstanding minus days payables outstanding. The time between paying for inputs and getting cash back from customers. DSO is the receivables leg of it.
The share of collectible receivables actually collected in a period, as a percentage. Calculated as (beginning AR + credit sales − ending total AR) ÷ (beginning AR + credit sales − ending current AR). Less distorted by sales swings than DSO, but sensitive to how "current" is defined.
A DSO method that works backwards from the most recent month, using up the receivables balance against each month's credit sales until it is exhausted. It tracks recent sales timing better than standard DSO when sales are seasonal or growing.
A block on new orders or shipments to a customer who has exceeded their credit limit or has seriously overdue invoices. A lever that protects exposure and, used carelessly, damages the relationship and the sale.
The maximum open exposure approved for a customer. Set from financial risk, payment history and the size of the relationship, and reviewed as those change.
A document that reduces what a customer owes, issued for returns, pricing corrections, or an upheld dispute. Unapplied credit memos sit in AR as negatives and distort ageing until they are matched.
An estimate of how many days of credit sales are sitting in receivables. The standard form is ending AR ÷ credit sales in the period × days in the period. A lagging, blended number: it is affected by terms, sales timing and mix as well as by collections.
When a customer pays less than the invoiced amount and nets off the difference, usually citing damage, shortage, pricing or a promotional allowance. Each deduction has to be validated, then recovered, credited or written off.
A customer's challenge to an invoice or part of it: price, quantity, delivery, quality or terms. The disputed amount is generally not collectable until resolved, so dispute volume and resolution time feed straight into DSO.
The structured sequence of reminders and escalations sent to customers with overdue invoices, with rising firmness at set intervals. The schedule of those steps is the dunning cadence.
A discount for paying early. "2/10 net 30" means 2% off if paid within 10 days, otherwise the full amount is due in 30. Cheap for the buyer to use, and expensive for the seller when annualised.
Posting the results of receivables activity (applied cash, adjustments, write-offs) back into the general ledger or ERP so that the sub-ledger and ledger agree.
A bank service that receives customer payments at a bank-controlled address, deposits them, and sends the seller the payment and remittance data.
Payment due a set number of days after the invoice date. Net 30 means the full amount is due 30 days after invoicing. Longer terms raise best possible DSO directly.
The end-to-end process from a customer order through credit approval, fulfilment, invoicing, collections and cash application to reporting. Treating it as one loop rather than separate departments is how bottlenecks get found.
A customer's commitment to pay a stated amount by a stated date, logged by collections. The share of promises that are kept shows how much to trust the next one, and feeds cash forecasting.
The customer's notice listing which invoices a payment covers. When it is missing, late or unmatched to invoice numbers, cash application slows and unapplied cash builds up.
The share of payments (or invoices, or lines) applied automatically with no human touch. Always say which unit it is counted in, as count, value and line-level rates can differ widely.
Money received but not yet matched to invoices. It overstates AR and DSO and can trigger reminders to customers who have already paid.
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