Whether you’re new to accounts receivable (AR) and collections or a bit more seasoned, it’s a good idea to brush up on some of the more commonly used acronyms. How many of these do you already know? Are there others your peers should know about? If so, leave us a comment below and we’ll add your suggestions to this list.
2/10, n/30: This is a typical credit term with the number “2” showing the discount percentage offered by the seller, and “10” indicating the number of days (from the invoice date) within which the buyer should pay the invoice in order to receive the discount. Similarly, the abbreviation n/30 states that if the buyer does not pay the full invoice amount within the 10 days to qualify for the discount, then the net amount is due within 30 days after the sales invoice date.
ADD: The average days delinquent metric conveys how many days invoices are running late and should ideally be close to zero.
AR: Accounts receivable is the amount owed to a business for goods or services rendered that a company expects to receive. This can also be a collection of a company’s outstanding invoices.
AR Aging: Disclosing the total open AR balances and parsing by aging buckets is a baseline metric your stakeholders should see at every meeting.
ARE: An accounts receivable entry is a single ACH debit to a consumer’s account originated from converting a consumer check (source document) delivered to an Originator via the U.S. mail, a drop box location, or in person for a payment of a bill at a manned location.
ARF: Accounts receivable financing is essentially the purchase of the face value of a company’s accounts receivables or invoices by a factoring company at a discount in exchange for a payment of a bill.
AR>90: Assuming net 30 (or less) terms, showing the dollar amount of invoices aged past 90 days helps assess financial risk.
BPDSO: Shows how effectively he AR team is collecting at a single glance; the closer DSO is to best possible days sales outstanding, the better.
CA: Current assets are those that will be converted to cash within the following year. These assets could be in the form of cash, inventory, or accounts receivable.
CEI: The collection effectiveness index offers similar information to DSO, but on a timelier basis; as a result, it’s an accurate health check of immediate AR efforts.
CR: Depending on the transaction, CR, or credit, is used as an accounting entry that has the potential to either decrease assets or increase liabilities/equity on a business’ balance sheet.
DSO: Days sales outstanding shows how long it takes you to get paid and acts as a baseline measure of AR team performance.
FA: Long-term fixed assets are more likely to provide a company with benefits for more than one year (real estate, land or major machinery, for example).
GAAP: A set of guidelines developed by the accounting industry, Generally Accepted Accounting Principles were established for companies to follow when reporting financial data.
Hopefully, this overview of AR terms will have you well on your way to successfully navigating through the often complex field of AR. To go more in depth with these metrics and learn about how to diagnose your receivables operations, reveal inefficiencies, and identify opportunities for improvement, take a look at The Ultimate AR Collections Benchmarks Report.