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| Term |
Definition |
| ACH (Automated Clearing House) |
An electronic method used to process transfers between banks via the Federal Reserve system and other AHC operators, such as automated payroll deposits and debit card purchases. ACH is more efficient and cost-effective than paper checks and transactions are usually processed and settled within one or two days. |
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| Accounts Payable |
Amounts owed by a business to its suppliers, vendors or creditors for goods and services received at any given time. |
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| Accounts Receivable |
Amounts owed to a business for goods or services rendered that it expects to receive. |
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| Amortization |
The process of gradually reducing any amount in regular installments over a period of time, such as write-down of bond premium, the cost of intangible assets or periodic payment of mortgage or other debt. |
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| Asset |
An economic resource belonging to a company or entity, an item owned by the company or entity; an asset has future economic benefit and is the result of past financial transaction. |
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| Attorney Demand |
A written letter sent to a debtor from a collection attorney firm demanding payment for an overdue amount. |
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| BAI (Bank Administration Institute) |
An organization geared towards improving the functionality of financial service companies through the offering of solutions, education and training. |
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| BAI Standards |
The quality standards to which most cash management service providers and banks are held. Each year, the survey done by the BAI researching the quality of processing by financial institutions, is often used to formulate the quality standards for the upcoming year. |
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| Bad Debt |
An account receivable, loan or note that is deemed uncollectible by the company and is written off. This usually occurs when a customer is unwilling to pay for services rendered to them. |
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| Balance Sheet |
The listing of assets (items owned), liabilities (obligations owed), and owners' equity (the difference between assets and liabilities), prepared at a specific point in time. |
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| Bank Guarantee |
A commitment by a bank to be answerable for payment to a specified beneficiary (seller) in the event of the failure of the bank's client (the buyer) to pay. |
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| Bank Routing Number |
A nine-digit number printed across the bottom of a check that identifies the financial institution it is drawn upon. |
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| Bankruptcy |
A legal declaration of the inability of an individual or an organization to pay their creditors. An organization will request for the reorganization of its debts (under chapter 11) or a liquidation of its assets (under chapter 7). Bankruptcy can be initiated by the debtor or by the creditors, in an effort to recoup a portion of what is owed to them. Debts of an insolvent person or organization are liquidated after being satisfied to the greatest extent possible by debtor's assets. |
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| Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) |
BAPCPA is a disclosure of rules regarding bankruptcy and debt counseling that apply to debtors, creditors, lawyers, debt relief agencies and petition preparers. This act helped to amend the 1968 Truth in Lending act. For more on this act, click here. |
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| Batch Processing |
An operation where related transactions are grouped together and submitted for processing at least once a day; usually used by merchants who do not have a real time verification system. |
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| Bill/Invoice |
A request for payment for products or services rendered, typically comprising an itemized list of charges, including prices, quantity, tax if applicable, and shipping charges. |
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| Bill Consolidator |
In EIPP, a Bill Service Provider that consolidates bills from other Bill Service Providers or Billers and delivers them for presentment to the Customer Service Provider |
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| Bill Detail |
Information provided to a customer from a biller that includes specific billing information. Also called "invoice detail." |
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| Bill of Lading |
A contractual document stating the terms between the shipper of goods and the transportation company. A bill of lading also serves as a receipt for goods. |
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| Bill of Sale |
A written, legal document that transfers title to personal property. |
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| Bill Summary |
An invoice summary sent to the customer explaining what is owed. Information on the summary may include: Amount owed, due date, biller name and account number, etc. |
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| Biller |
A company or organization that issues a bill or invoice requesting payment for a product or service rendered to a customer or client. |
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| BPP (Biller Payment Provider) |
An agent that accepts remittance information on the biller's behalf. |
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| BSP (Biller Service Provider) |
An agent that provides an electronic payment service for the biller. |
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| Call Campaign |
A series of calls made by collectors to contact a debtor by telephone. |
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| Call Center |
An area within an organization that handles inbound and outbound customer service calls, technical support and many other customer-related responsibilities. |
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| Cash Flow |
The amount of cash that is coming into a company compared to how much is leaving the company. A healthy financial condition entails a higher inflow of cash than outflow. |
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| Cash Receipts |
Money received by a business from its customers, such as payments on accounts receivable. |
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| Collateral |
An asset or property used as assurance that a debt will be repaid. The asset will be given to the creditor in the event of a default. |
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| Collection |
The act of pursuing debtors who are delinquent on payments due. |
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| Collection Charges |
Fees added to accounts receivable for outside collection efforts, including administration costs, penalties and interest. |
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| Consolidator |
An interface between multiple buyers and sellers that simplifies invoice presentment allowing trading partners to interact through one party. |
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| Corporation |
A legal business entity that has its own rights, including issuance of freely transferable stock, perpetual life and limitation of owner's liability. |
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| Credit Memo |
A credit memo is a document issued by a company to a customer to offset all or part of an invoice, to correct accounts receivable and make good to the customer for such issues as damaged or return goods, lack of delivery, incorrect prices or freight charges, or other such problems. The company usually applies the credit memo against the customer’s outstanding balance, or issues a check to the customer. |
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| Creditor |
An individual or organization to whom money is owed. |
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| Cycle Billing |
An accounting method where invoices are prepared and divided into cycles and dispatched throughout the accounting period, rather than billing all customers on the same day each month, thus spreading work evenly over time. |
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| Dashboard |
A reporting tool that organizes and presents key information or metrics to provide the status or condition of a project, process or business. |
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| Data Encryption |
Converting important information into scrambled text to prevent unauthorized use and to protect confidentiality of the information. This process makes the data unreadable until it is decrypted. |
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| Debit Transaction |
An electronic payment transaction that results in a debit to a cardholder's account and a credit to the merchant account. |
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| Debt Buyer |
A purchaser of accounts receivable or portfolios. Unlike a factor, if collection attempts are unsuccessful, a debt buyer will either place receivables with an external collection agency or resell all or portions of the receivables to other debt buyers. Defined as a "collection agency" under the Fair Debt Collection Practices Act. Also called "bad debt buyers." |
Debt Collection Improvement Act of 1996 (DCIA) |
The U.S government's response to the increasing amount of delinquent non-tax debt owed to the U.S. The act centralized the collection of debts to the Treasury and the Financial Management Service (FMS). Also under the act, federal agencies are required to turn over all non-tax debt to FMS for collection. Collection of delinquent tax debt was added in 1999. For more on this act, click here. |
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| Debtor |
A party that owes a creditor and has the obligation to pay off the debt. |
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| Direct Payment |
A method of collection where a debtor authorizes a creditor to debit their account to collect payment. |
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| Disputed Stop Payment |
A stop payment initiated by the writer of a check due to a dispute over goods or services. |
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| DSO |
DSO is Days Sales Outstanding, a measurement of the average number of days that a company takes to collect revenue after a sale has been made. DSO = [(Total Receivables / Total Credit Sales for the Period) X (# Days in Period)]. For more information see Understanding Your DSO. |
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| DSO, Sales Weighted |
Sales Weighted DSO is a method of calculating DSO that takes into account credit sales and terms of sale. Sales Weighted DSO = [($ in Current Age Bucket / Credit Sales of Current Period) + ($ in 1-30 Day Age Bucket / Credit Sales one month prior) + ($ in 31-60 Day Age Bucket / Credit Sales two months prior) + (etc.)] x 30.
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| DSO, Countback |
Countback DSO is a method of calculating DSO that seeks to provide a more precise figure than the standard DSO calculation, by accounting for month-to-month changes in sales and past due receivables, and using actual number of days in the month. The calculation gives more weight to the current month’s sales, since most of the AR balance should be from current rather than previous sales.
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| Due Diligence |
Documented collection efforts made by creditors and lenders to collect on a delinquent account; also, in escheatment, statutorily required effort to contact the owner of unclaimed property. |
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| Dunning Letter |
A collection letter with defined language sent to a customer with an outstanding account, and part of a series of escalating collection letters. |
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| Dunning Letter Service |
A service that distributes dunning letters. |
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| Electronic Banking |
The use of computers and other technology to handle banking transactions and to access bank accounts. Financial institutions usually issue a PIN (Personal Identification Number) and/or ATM or debit cards for this purpose. |
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| Electronic Bill Delivery |
A system that sends customer bills via computer or telephone. |
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| EBPP (Electronic Bill Presentment and Payment) |
A system that sends bills and other information electronically to customers and provides a way for them to make the payment. |
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| EDI (Electronic Data Interchange) |
A system that makes possible the electronic exchange of documents such as purchase orders, invoices and other business transactions. |
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| EFT (Electronic Funds Transfer) |
A computerized system that electronically transfers funds from one account to another. EFT eliminates the need for paper checks. |
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| Electronic Payment |
An alternative payment method to the paper check that is made electronically via computer, telephone or ATM. |
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| Extranet |
A private system that is part of an organization's internal computer network that is made available to outside users such as suppliers, vendors, partners or other businesses. The system allows the organization to share information through various levels of accessibility. |
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| Factor |
A company that purchases accounts receivable from a client, then collects payment for the invoices. |
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| Factoring |
A financial transaction whereby a business sells its accounts receivable at a discount. The purchasing organization assumes the responsibility of collecting the invoices |
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| Factoring Rate |
Percentage of invoice amount a factor charges for advancing on an invoice. |
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| Fair and Accurate Credit Transactions Act (FACTA) |
A federal law enacted in December 2003 to reduce identity theft and help victim recovery by providing ways for consumers to obtain their credit report and credit score. For more information on this act, click here. |
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| Fair Credit Billing Act of 1974 (FCBA) |
An act that helped amend the 1968 Truth in Lending Act and applies to "open end" credit accounts, such as credit cards or revolving charge accounts. The act also only applies to billing error disputes and does not apply to installment contracts. Under the act, consumers can dispute billing errors such as unauthorized charges, incorrect charged amounts, failure to post payments, and charges for undelivered or unaccepted goods. For more on this act, click here. |
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| Fair Credit Reporting Act (FCRA) |
A federal consumer protection law that ensures that credit reporting agencies act fairly and establishes procedures on how to correct mistakes that appear on credit reports. To read the full act, click here. |
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| Fair Debt Collection Practices Act (FDCPA) |
A federal consumer protection law that ensures that collection agencies do not use abusive or deceptive debt collection practices.
To read the full act, click here. |
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| Federal Reserve |
The central banking system in the United States. Twelve banks belong to the Federal Reserve and serve twelve districts. The functions of the Federal Reserve include enforcing good banking practices, ensuring compliance with federal regulations, providing loans and money to banks and determining interest rates. |
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| Foreclosure |
A legal forced sale of a property due to failure of a mortgager to comply with the terms and conditions of the mortgage. The property is sold to pay off the debt of the defaulting borrower. |
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| Full-Service Collections |
A third party collection service that uses several collection tactics throughout the collection cycle. Tactics include written debtor contacts and calls from professional collectors. |
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| Health Insurance Portability & Accountability Act (HIPAA) |
A federal act that protects American workers by improving portability and continuity of health insurance coverage. To see the full act, click here. |
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| IFX (Interactive Financial Exchange) |
A standard set for the exchange of financial data and instructions. |
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| Investment-to-value Ratio |
A measurement of a creditor's position and the likelihood that a foreclosure would occur. |
| Invoice |
A formal request for payment; a written record of a transaction submitted to customer or client when requesting payment for services or goods delivered; includes taxes where applicable; also called bill, and sometimes statement, though the term "statement" has a different meaning that does not include a formal request for payment. |
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| Key Performance Indicators (KPI) |
A short list of important financial or operational metrics that provide a measurement for results. |
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| Leverage |
The ability to control property of greater value than the amount of capital invested, in an effort to increase return on equity. |
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| Lien |
A legal claim by one person on the real or personal property of another as security for a debt; a lien blocks the sale of the property until the lien is paid. |
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| Limited Liability Company |
A form of business structure designed to combine the best of corporate and partnership attributes into one entity; members have limited liability and are taxed like a partnership, avoiding double taxation. Rules vary by state. |
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| Loan-to-value Ratio |
The ratio of the money borrowed on a property to the property's fair market value. |
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| Lockbox |
A third party collection service, often a bank, to which clients have customers send payment. This provides the client with faster deposits and better control of cash. |
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| Matched Payments |
A payment made that equals the amount that is due. Also called a "full payment." |
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| MICR (Magnetic Ink Character Recognition) |
A character recognition technology adopted by the banking industry to facilitate check processing, includes magnetic ink or toner and unique fonts on the bottom of checks. The encoding contains the account number, the routing number, the serial number and the amount of the check. |
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| MICR Number Method |
A procedure that authorizes a check using the bank routing number, the account number and the check number located at the bottom of the check. |
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| MICR Reader |
An instrument used to read the encoded information in the magnetic ink on the check. |
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| NACHA |
A not-for-profit association that represents more than 11,000 financial institutions through memberships, a network of regional payments associations and 585 organizations through its industry councils and establishes standards and procedures that enable the exchange of ACH payments on a national basis. |
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| Non-Sufficient Funds |
Indicates that a demand for payment (a check) cannot be honored because there are not enough funds to cover the check. |
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| Non-recourse Factoring |
A factoring agreement where the factor assumes all the debt risks and all rights to pursue a customer for payment. The client is not responsible for refunding the advance if the debt is not paid. |
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| OCR (Optical Character Recognition) |
Software that electronically converts scanned images into text. |
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| OFX (Open Financial Exchange) |
A data format used by financial institutions to exchange financial information over the Internet. |
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| Originator |
Any individual, corporation or financial institution that initiates an ACH transfer. |
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| Outsourcing |
The process of hiring a third-party firm to handle internal company functions. Outsourcing often leads to cost-savings and better efficiency. |
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| Overdraft |
A debit or check written for an amount that exceeds the amount of funds available in the bank account. Financial institutions often will charge a fee for each overdraft made to the account. |
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| Payee |
The individual or organization to whom a check is made payable. Also known as the receiver of payments. |
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| Payment |
A method to effect the transfer of value; the transfer of funds between bank depositories or to or from a debt instrument. |
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| Payor or Payer |
The individual or organization that makes a payment. |
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| Portfolio |
A list of financial assets, investments and securities owned by an individual or an entity. |
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| Power Dialer |
A high-speed telephone system that rapidly dials numbers in succession. |
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| Predictive Dialer |
A new, high-speed telephone system that automatically dials batches of telephone numbers simultaneously until one number is answered and also monitors the length of each call to determine an average call length. |
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Preference Payment
(Preferential Payment) |
A payment made during the "preference period," typically 90 days prior to filing for bankruptcy, where a creditor is favored by receiving payments in preference over other creditors or inconsistent with the normal course of business between creditor and debtor. Creditors found to have received such preference have to return the payments. See A Customer in Bankruptcy. |
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| Proforma invoice |
An invoice typically sent prior to shipment and represents an estimate. It is not the actual bill. Companies do not pay from these invoices. A commercial invoice should follow with the final price. |
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| Promissory Note |
A legal document between a lender and a borrower where the borrower promises to repay the loan by a given date. The promissory note also contains information about the terms and conditions of the loan. |
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| Recourse Factoring |
A factoring agreement where the factor has the right to reclaim their advance to the client if the customer does not pay the debt. |
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| Remittance Information |
The information needed by the biller to accurately post customer bill payments. |
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| Remittance Method |
The method used to deliver remittance information. |
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| Replevin |
A legal action taken by an individual to recover property taken unlawfully. |
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| Settlement |
The resolution of a legal matter without having to dispute the case in court. |
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| Skip Tracing |
The process of finding the whereabouts of persons, often hard-to-locate debtors, known as "skips." |
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| Sole Proprietorship |
A business that is owned and operated by one individual. The sole owner assumes all financial and legal liability for the business. |
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| SPUD |
Short-paid un-reconciled deduction; received payment that is less than the amount invoiced. |
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| Statement/Notice |
A periodic report that states all transactions on a single account. A statement can also be an itemized list of charges showing due dates and amounts owed. |
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| Subordination |
Acknowledgement that a debt owed is inferior to another debt owed by the same debtor. |
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| Tangible Personal Property |
Property, excluding real property, that can be seen and touched and has an intrinsic value. |
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| Time Value of Money |
The principle that money received in the present is worth more than money invested in the future. |
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| Transaction |
Activity between two parties. A transaction can be financial or commercial. |
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| UB-92 |
The standard billing format for submitting hospital claims, developed by the AHA's National Uniform Billing Committee. |
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| Unbilled Receivables |
Receivables for which services or products have been delivered and revenue recognized but no invoice has been issued; unbilled receivables are a metric to watch, since timely billing is critical to cash flow. |
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| Uncollected Funds |
Checks that have been deposited into an account but have not yet been paid by the bank(s) on which the checks were drawn. |
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| Uniform Commercial Code (UCC) |
A set of statutes and laws adopted by most states to govern commercial transactions uniformly. |
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| Unmatched Payments |
Payments made that differ from the amounts that are due. |
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| Unseasoned |
A debt that has had very few, if any, payments made on it. |
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| Wholesale Lockbox |
A third party collection service that collects business-to-business payments from a lockbox dedicated to receiving payments from these businesses. This is typically a high-dollar, low volume payment lockbox. |
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