Glossary
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Accounts Receivable money owed to a business for merchandise or services sold on open account, a key factor in analyzing a company’s LIQUIDITY, its ability to meet current obligations without additional revenues. See also ACCOUNTS RECEIVABLE TURNOVER; AGING SCHEDULE; COLLECTION RATIO.

Accounts Receivable Financing short-term financing whereby accounts receivable serve as collateral for working capital advances. See also FACTORING.

Accounts Receivable Turnover ratio obtained by dividing total credit sales by accounts receivable. The ratio indicates how many times the receivables portfolio has been collected during the accounting period. See also ACCOUNTS RECEIVABLE; AGING SCHEDULE; COLLECTION RATIO.

Aging or Aging Schedule …a vital tool in analyzing the quality of a company’s receivables investment. Most often seen as: (1) a list of the amount of receivables by the month in which they were created; (2) a list of receivables by maturity, classified as current or as being in various stages of delinquency. The aging schedule reveals patterns of delinquency and shows where collection efforts should be concentrated. It helps in evaluating the adequacy of the reserve for BAD DEBTS, because the longer accounts stretch out the more likely they are to become uncollectible. Using the schedule can help prevent the loss of future sales, since old customers who fall too far behind tend to seek out new sources of supply.

Asset anything having commercial or exchange value that is owned by a business, institution, or individual.

Bad Debt open account balance or loan receivable that has proven uncollectible and is written off.

Bankruptcy state of insolvency of an individual or an organization, in other words, an inability to pay debts.

Bankruptcy Preference Action The return of preferential payments under 11 U.S.C. § 547 of the Bankruptcy Code is for the fair and equal treatment of all unsecured creditors. Reclamation of such payments is intended to redistribute the bankruptcy estate's assets equitably among all of the unsecured creditors

Bill In general: (1) short for bill of exchange, an order by one person directing a second to pay a third. (2) document evidencing a DEBTOR’s obligation to a CREDITOR.

Billing Cycle interval between periodic billings for goods sold or services rendered, normally one month, or a system whereby bills or statements are mailed at periodic intervals in the course of a month.

Business Day In general: hours when most businesses are in operation. The conventional business day is 9 A.M. to 5 P.M.

Collection referral of a past due account to specialists in collecting loans or accounts receivable, either an internal department or a private collection agency. In a general financial sense, conversion of ACCOUNTS RECEIVABLE into cash.

Collection Period or Ratio ratio of a company’s accounts receivable to its average daily sales. Average daily sales are obtained by dividing sales for an accounting period by the number of days in the accounting period, annual sales divided by 365, if the accounting period is a year. That result, divided into ACCOUNTS RECEIVABLE (an average of beginning and ending accounts receivable is more accurate), is the collection ratio or the average number of days it takes the company to convert receivables into cash.

Credit Limit the maximum balance allowed for a particular customer.

Creditor party that extends credit, such as a trade supplier, a bank lender, or a bondholder.

Debt money, goods, or services that one party is obligated to pay to another in accordance with an expressed or implied agreement. Debt may or may not be secured.

Debtor any individual or company that owes money.

Delinquency failure to make a payment on an obligation when due.

Dun to importune for payment, an important demand for payment.

Factoring type of financial service whereby a firm sells or transfers title to its accounts receivable to a third party which then acts as principal, not as agent. The receivables are sold without recourse, meaning that the factor can’t turn to the seller in the event accounts prove uncollectible.

Invoice bill prepared by a seller of goods or services and submitted to the purchaser. The invoice lists all the items bought, together with amounts and TERMS OF SALE.

Liquidity ability to buy or sell an ASSET quickly. Refers to the ability to convert to cash quickly.

Terms of Sale period of time during which the conditions of a contract will be carried out. May refer to the time in which loan payments must be made or invoices should be paid. A deadline as for making payment.

Write-off charging an ASSET amount to expense or loss. The effect of a write-off is to reduce or eliminate the value of the asset and reduce profits. Write-offs are taken when assets are, for whatever reason, deemed worthless, the most common example being uncollectible ACCOUNTS RECEIVABLE.