A quick-reference glossary of the accounts receivable terms finance teams use every day, from DSO and CEI to dunning, aging reports, and net terms. Each definition is written in plain English with links to deeper guides where useful.
Accounts receivable has its own vocabulary, and the terms get used loosely. This glossary defines the AR terms finance teams rely on most, in plain English, with links to deeper guides where it helps. For a primer on the discipline itself, start with what is AR automation.
Accounts receivable (AR)
The money customers owe your business for goods or services delivered on credit but not yet paid. AR is a current asset on the balance sheet and represents future cash.
Days sales outstanding (DSO)
The average number of days it takes to collect payment after a credit sale. DSO = (Accounts Receivable / Total Credit Sales) x Number of Days. A lower DSO means faster cash conversion. Benchmark yours with our free DSO calculator, and see 7 ways to reduce DSO.
Collections effectiveness index (CEI)
A measure of how much of your available receivables you actually collected in a period, expressed as a percentage. Where DSO measures speed, CEI measures thoroughness. A CEI close to 100% means you are collecting nearly everything that was collectable.
Aging report (AR aging)
A breakdown of all outstanding invoices grouped by how overdue they are, typically current, 1-30 days, 31-60, 61-90, and 90+. The aging report shows where collection risk is concentrated so you know which accounts to prioritize.
Net terms
The payment window you extend to a customer, written as "Net" plus a number of days. Net 30 means payment is due 30 days after the invoice date. Common variants include Net 15, Net 45, and Net 60, sometimes with an early-payment discount such as "2/10 Net 30" (a 2% discount if paid within 10 days).
Dunning
The process of communicating with customers to collect overdue payments, usually as a sequence of escalating reminders. Modern dunning runs across multiple channels. See multi-channel payment chasing for how email, SMS, voice, and WhatsApp compare.
Cash application
Matching incoming payments to the correct open invoices so your ledger reflects what is actually paid. Manual cash application is time-consuming when payments arrive without clear references; automating it is a major time saver.
AR turnover ratio
How many times per year your business collects its average accounts receivable. AR turnover = Net Credit Sales / Average Accounts Receivable. A higher ratio indicates faster collection.
Average days delinquent (ADD)
The average number of days invoices are paid past their due date. While DSO measures time from sale to payment, ADD isolates how late payments are relative to terms, which is a cleaner signal of customer payment behavior.
Bad debt
Receivables you no longer expect to collect, which are written off as an expense. A bad debt reserve (allowance for doubtful accounts) is an estimate set aside in advance to absorb expected losses.
Write-off
Formally removing an uncollectable invoice from your receivables and recognizing it as a loss. Knowing when to send invoices to collections before writing them off protects recoverable cash.
Credit memo
A document that reduces the amount a customer owes, issued for returns, disputes, overbilling, or agreed discounts. Credit memos adjust the open balance on an invoice.
Promise to pay (PTP)
A commitment from a customer to pay a specific amount by a specific date. Tracking PTPs and following up when they are missed is a core collections workflow.
Invoice
A bill issued to a customer that lists goods or services, amounts, terms, and the due date. Accurate, promptly sent invoices are the foundation of getting paid on time.
Payment portal
A self-service page where customers can view invoices and pay online. Reducing friction at the moment of payment is one of the simplest ways to get paid faster.
Disputed invoice
An invoice a customer contests over price, quantity, quality, or terms. Disputes freeze cash until resolved, so flagging and routing them quickly is essential to healthy AR.
Credit policy
The rules that govern how much credit you extend, to whom, and on what terms. A clear credit policy reduces the risk of late payment and bad debt before an invoice is ever sent.
Cash collections
The actual cash received from customers in a period. Forecasting it accurately is harder than it looks; see the cash collections formula for a customer-specific approach.
Order to cash (O2C)
The end-to-end process from a customer order through invoicing, collections, and cash application. AR automation focuses on the back half of O2C: invoicing through collection.
Factoring
Selling your receivables to a third party at a discount in exchange for immediate cash. Factoring trades some margin for faster liquidity and is distinct from automating collections, which speeds up cash without giving up margin.
Working capital
The cash available to run day-to-day operations, calculated as current assets minus current liabilities. Because receivables tie up cash, reducing DSO directly frees working capital. Our DSO calculator estimates how much.
Put the terms to work
Definitions are a starting point. The leverage is in the workflow: invoicing promptly, following up consistently across channels, and escalating the right accounts at the right time. That is what AR automation handles. When you want to see it run on your own receivables, book a demo.
Frequently Asked Questions
What does AR mean in finance?
AR stands for accounts receivable: the money customers owe your business for goods or services delivered on credit but not yet paid for. It appears as a current asset on the balance sheet and represents future cash you expect to collect.
What is the difference between DSO and aging?
DSO (days sales outstanding) is a single metric that summarizes the average number of days it takes to collect payment. An aging report is a breakdown of every outstanding invoice grouped by how overdue it is (for example, current, 1-30 days, 31-60, 61-90, 90+). DSO tells you the headline; the aging report shows where the risk sits.
What is a good DSO?
It varies by industry and payment terms, but a DSO under 45 days is generally healthy, 45 to 60 has room to improve, and above 60 suggests cash is getting stuck. Compare it against your own terms: if you bill Net 30 but your DSO is 55, customers pay about 25 days late on average. Use our free DSO calculator to benchmark yours.
