Invoice & finance glossary

51 terms, defined the way they are actually used rather than the way a textbook defines them. Each definition is short, states the common misconception where there is one, and links to a guide when the term deserves more than a paragraph.

Last reviewed 17 Sep 2026.

All 51 terms

Accrual basis: Recording revenue and expenses when they are earned or incurred, rather than when cash moves. Most limited companies and all partnerships are on this basis; sole traders are usually allowed to choose cash basis if they qualify.
Accounts payable: The client's function that approves and pays supplier invoices. In larger organisations the role is split, and an invoice that satisfies one department can still sit in another. The single most useful thing you can do is ask who has to approve it before you send the first one.
Accounts receivable: Money owed to you by clients. Every unpaid invoice you have issued is an account receivable, and the total of them is the number your cash flow actually depends on.
Bad debt: An invoice written off as uncollectible. Whether a write-off is tax-deductible, and when you can deduct it, is jurisdiction-specific and often tied to evidence that you tried to collect.
Basis points (bps): One hundredth of a percentage point, so 100 bps is 1%. Finance professionals quote small rate differences this way because "0.5%" is ambiguous about direction.
Billable hours: Hours you can charge a client for. Non-billable time - proposals, admin, invoicing, invoicing-related chasing, and learning - belongs in overheads, not in the job.
Cash basis: Recording income and expenses only when money actually moves. Simpler and often more flattering in a good year, because it can defer costs past the point where they are incurred. Sole traders commonly use it if their turnover is below the statutory limit.
Change order: A written agreement to vary the scope, timeline or fee of an agreed project. It is also the mechanism that tells you where a large share of unpaid invoices came from: agreed informally, and never billed. Get it in writing before the extra work starts.
Compound interest: Interest charged on the original principal plus interest already accrued, so the daily charge itself grows. On a single overdue invoice, simple interest is nearly always more appropriate and much easier to defend.
Cost of sales: The direct costs of delivering the work: subcontractors, stock, licences bought for this job, pass-through media, and payment processing fees. In the Margin Calculator this is the Direct cost field. It is distinct from overheads because it disappears when the job does.
Credit note: A document that reduces an invoice you have already issued, carrying its own number in its own series and referencing the original invoice in full. It reduces an amount owed - the money still has to move separately, and the tax usually has to be adjusted on a return as well.
Daily rate: The interest charged per day on an overdue invoice, derived from an annual rate by dividing by 365, or from a monthly rate by dividing by 30. Which basis applies is a term you set in your contract, not a detail to leave open.
Delivery note: A document accompanying goods that states what was sent and in what quantity. It records the dispatch, not the payment, so it is neither an invoice nor a receipt, and it usually is not a tax document - the invoice is. It matters most for proof of delivery in a dispute.
Deposit: An upfront payment before the work starts, commonly 30% to 50%. It protects you from a cancellation and it is the most effective payment-terms change you can make, because it moves the cash-flow problem to the point where you are most confident the work will happen.
Due date: The calendar date by which payment must be received. Write the actual date on the document rather than the phrase "Net 14": the term is shorthand for a date, and only the date is unambiguous when the two of them disagree.
Economic nexus: The US sales-tax test that requires you to register in a state once your sales into it pass a threshold - which may be a revenue figure, a transaction count, or both, set by each state separately. There is no US-wide threshold: a figure you read in one state often does not apply in the next, which is why the answer is a per-state check rather than a single number.
Gross margin: (Revenue - direct cost) / Revenue x 100. Profit as a share of what the client paid you, calculated before overheads. It is the number to quote to a client and the one to improve on a project; it says nothing about whether the business covers its running costs.
Gross profit: Revenue minus direct cost. The absolute money left after the costs of actually delivering the work, and before a single day of overhead is paid for.
GST (Goods and Services Tax): The value-added tax used in Australia, New Zealand, Canada, India, Singapore and elsewhere. The arithmetic is identical to VAT and the administration is broadly similar, but the registration threshold, the tax period, the place-of-supply rules and the treatment of low-value imported goods are all different in each country.
Input tax (input credit, input VAT): Tax you pay on business purchases that you can reclaim from the tax authority, if and only if you are registered. Being unregistered does not make it recoverable - it makes it a cost, which is part of why registration thresholds matter even below the level where you are required to register.
Invoice: A formal request for payment issued once there is something to bill for. It creates the obligation to pay, so the details on it are the details a client will query. Its tax treatment is governed by when the underlying supply is treated as having taken place, which is not always the invoice date.
Invoice number: A unique identifier in a sequential series. The common failure mode is not a bad format but a gap or a duplicate, because a series with a hole in it cannot be reconciled against a bank feed. A scheme like INV-2026-0001 survives year boundaries and sorts correctly.
Kill fee: A fee payable if a client cancels a project partway through, usually a percentage of the remaining fee or a set sum. It is the clause that makes cancelling survivable, and it is worth having agreed in writing before the work starts, not improvised afterwards.
Late payment interest: Interest charged on an overdue invoice. It can be set by statute, set by your contract, or both - and a contractually agreed rate generally replaces the statutory one, which is why the clause is worth writing carefully rather than leaving to default.
Markup: (Revenue - cost) / Cost x 100: profit expressed as a share of what the work cost rather than what the client paid. It is always the higher of the two figures, which is exactly why the confusion is expensive - a 50% markup is a 33% margin, and a 100% markup is a 50% margin.
Milestone: A defined point in a project that triggers a payment. Each milestone should get its own numbered invoice, and the client should be able to see from the line descriptions which part of the scope it pays for.
Net margin: (Revenue - direct cost - overheads) / Revenue x 100. What is left after the costs of running a business at all, expressed as a share of revenue. This is the number to watch, and it is the one that reveals a business priced accurately and still not viable.
Net profit: Revenue minus direct cost minus overheads. The absolute amount left, and the one number that answers "was this worth doing" more honestly than the percentage does.
Net 7 / Net 14 / Net 30: Payment terms meaning payment is due 7, 14 or 30 days after the invoice date. Always print the resulting date on the document. Net 30 is a convention inherited from large corporates and is slower to get paid than a shorter term; deposits outperform both.
Overheads: Costs that exist whether or not any particular project is running: software, insurance, accounting fees, equipment, rent, and the unbillable hours spent on proposals, admin and chasing invoices. They are entered separately from direct cost precisely so the two can be reasoned about differently.
Payment terms: The combination of when payment is due, in what form, and what happens if it is late. Written as three specific things - a number of days, a payment method, and a late-payment clause - rather than as the single word "terms" on its own.
Place of supply: The jurisdiction a supply is treated as taking place in for tax purposes, which determines which regime applies. For most services supplied to a business it is the customer location, but services connected with property, events, transport and passenger travel are treated differently, and digital services have their own rules.
Proforma invoice: A document that looks like an invoice and is not one: a pre-payment request, a customs document, or an internal approval form. Because it is not a tax invoice it does not create a tax point, and a client who treats one as a final invoice will query the invoice that follows.
Purchase order (PO): The client's internal authorisation number for spending. Many accounts-payable systems will not process an invoice without one, and it is worth asking for it at quote stage - a PO number supplied after the invoice arrives can add days for reasons that have nothing to do with you.
Quote / quotation: A priced proposal for a defined scope, issued before the work starts. It is an offer rather than a demand, so either party can usually walk away, and it normally has an expiry date. Its number belongs in a separate series from invoices so the two can never be confused.
Receipt: A document confirming that payment has been received. It settles an existing obligation rather than creating one, so it needs the invoice number it settles and the amount and date received. Where the registry requires a proof-of-payment record, that is this document.
Retainer: A recurring fee for ongoing availability or a block of hours rather than a single deliverable. It stabilises cash flow, and the terms need defining more carefully than a fixed fee does - what the hours are for, what happens when they run out, and whether unused time rolls forward.
Reverse charge: A mechanism in VAT and GST systems where the customer, rather than the supplier, accounts for the tax on a transaction. When it applies, the correct treatment is often to charge nothing at all and state why on the document - not to charge the tax and hand it on. It exists to tax business-to-business supplies in a single country rather than in both.
Revenue: The price you charge the client, excluding tax. In the Margin Calculator this is the Revenue field. It is not the money in your bank account: tax you owe on it, and the amount of it you are still waiting for, both belong elsewhere.
Sales tax: A single-stage tax charged on the final sale to the end customer, used in the US. Unlike VAT it is not reclaimed by the business paying it, which is why the rates look high for the same revenue. The rate depends on where the buyer is, and there is no federal rate at all.
Simple interest: Interest charged only on the original principal, at a constant amount per day. Formula: principal x annual rate / 365 x days. It is easier to explain to a client, easier to defend, and almost always preferable to compound interest on a single invoice.
Statutory interest: A rate set by law for late payment of commercial debts, payable without needing a contract clause. The specific rates differ by country and are periodically revised - the EU directive sets a floor in relation to the central bank reference rate and leaves member states to set the actual figure, and individual countries have changed their own rates more than once. Check the current figure for your jurisdiction rather than relying on a remembered one.
Subcontractor: A third party you engage to deliver part of a project. Their fee is a direct cost of that project, and a copy of their invoice is the evidence for it - which is also why you want the invoice even when the payment went through a platform that takes its own cut.
Tax exclusive: A price shown without tax, with the tax added on top. The usual convention for B2B quotes, because a business client usually wants to reclaim the tax. Formula: gross = net x (1 + rate%).
Tax inclusive: A price shown with tax already inside it. The usual convention for consumer prices. The tax has to be extracted by dividing, not by subtracting the rate - which is the single most common arithmetic error in pricing. Formula: net = gross / (1 + rate%).
Tax point: The moment a supply is treated as having taken place, and therefore the moment tax becomes due on it. For many services this is when the supply is completed, for others it is when payment is received, and for a deposit it is usually when the deposit is taken. Which one applies is a question about your tax regime, not a rule of thumb.
Turnover: Total sales revenue in a period. Tax regimes define their registration threshold in terms of it, but the definition is not always the same as the figure on your bank statement: it usually excludes VAT, includes some zero-rated and exempt supplies, and may be measured on a rolling or a calendar basis depending on the country.
Unbilled work (work in progress): Work completed or partly completed that has not yet been invoiced. It is invisible in your accounts until you invoice it, and it is a common source of "I thought that was included" disputes - which is an argument for billing on milestones rather than at the end.
VAT (value added tax): An indirect tax charged on each supply in a chain, where a business reclaims the tax it paid on its own inputs. The neutral part of the design is what makes VAT revenue-neutral for a business but a large cost for the end consumer, and it is why the rate can be high without the business keeping any of it.
Write-off: Recording an amount as unrecoverable rather than continuing to carry it as an asset. Sound bookkeeping hygiene, and it stops a permanently unpaid invoice from distorting your figures indefinitely - but write off what has genuinely been abandoned, not what is merely late.
Zero-rated: Taxable at 0%. It is not exempt: you still charge nothing, still file a return, and - unlike an exempt supply - you can generally still reclaim the input tax on the associated costs. That distinction is the practical reason to know which one you are dealing with.

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Definitions are written for practical reference, not as authority. Tax terms in particular mean slightly different things in different jurisdictions, and several of the figures mentioned here are subject to change. Treat this page as a way of knowing what to ask, not as the answer — and note that it was last reviewed alongside the rest of the site on the date shown above.