Reference

Invoice Glossary

Plain-English definitions for invoicing, billing, and payment terms. Bookmark this page and come back whenever you hit a term you don't recognize.

Accounts Payable (AP): Money a business owes to its suppliers or vendors. When a client receives your invoice, it goes into their accounts payable queue.
Accounts Receivable (AR): Money owed to a business by its clients. When you send an invoice, the amount becomes part of your accounts receivable until the client pays.
Billing Cycle: The recurring time period between invoices. Monthly billing cycles are the most common for ongoing services. Some businesses bill weekly, biweekly, or quarterly.
Credit Note: A document issued to reduce the amount a client owes. Used when you need to correct an invoice, apply a discount after the fact, or account for returned goods. Also called a credit memo.
Debit Note: A document sent to request additional payment, typically when the original invoice undercharged the client. Less common than credit notes but used in wholesale and manufacturing.
Due Date: The date by which payment is expected. Set by the payment terms on the invoice. Missing a due date can trigger late fees if specified in the agreement.
Due on Receipt: Payment is expected immediately when the client receives the invoice. There is no grace period. Common for small projects, one-off services, and retail transactions.
Estimate: A document outlining the expected cost of work before it begins. Not legally binding like an invoice. Also called a quote or quotation. Often converted into an invoice once the work is approved and completed.
Gross Amount: The total amount on an invoice before any deductions like discounts, taxes withheld, or credits are applied.
Invoice: A formal document sent by a seller to a buyer requesting payment for goods or services. It lists what was provided, the amount owed, and when payment is due.
Invoice Number: A unique identifier assigned to each invoice. Used for tracking, accounting, and reference. Keep them sequential (INV-001, INV-002) or date-based (2026-0324-01). Never reuse a number.
Late Fee: A charge added when payment is not received by the due date. Typically a flat fee or a percentage of the invoice total (e.g., 1.5% per month). Must be agreed upon in advance to be enforceable.
Line Item: A single entry on an invoice describing one product or service. Each line item typically includes a description, quantity, unit price, and total for that item.
Net Amount: The amount due after all deductions (discounts, credits, withholdings) have been applied. This is what the client actually pays.
Net 15 / Net 30 / Net 60: Payment terms indicating how many days after the invoice date the payment is due. Net 30 means the client has 30 days to pay. Net 15 gives them 15 days. Net 60 gives them 60. Shorter terms mean faster cash flow for you.
Overdue Invoice: An invoice that has passed its due date without being paid. Following up promptly on overdue invoices is critical for maintaining healthy cash flow.
Payment Terms: The conditions under which payment is expected. Includes the due date, accepted payment methods, late fee policy, and any early payment discounts. Should be clearly stated on every invoice.
Pro Rata: A proportional charge based on partial usage. If a client signs up mid-month for a monthly service, you bill them pro rata for the remaining days rather than the full month.
Proforma Invoice: A preliminary invoice sent before work is completed or goods are shipped. It shows the expected charges and serves as a commitment from both parties. Not a demand for payment, but a confirmation of what the final invoice will look like.
Purchase Order (PO): A document issued by a buyer to a seller authorizing a purchase. Many companies require a PO number before they can process an invoice. Always ask your client if they use PO numbers before invoicing.
Receipt: A document confirming that payment has been received. Sent after the client pays, not before. Different from an invoice, which is a request for payment.
Recurring Invoice: An invoice that is automatically generated and sent at regular intervals for ongoing services. Common for retainers, subscriptions, and maintenance contracts.
Retainer: An upfront fee paid to secure ongoing services. The client pays a fixed amount (monthly, quarterly) and the provider delivers an agreed scope of work. Retainer invoices are typically recurring.
Scope of Work (SOW): A document defining what work will be delivered, by when, and for how much. Referenced on invoices to tie charges back to agreed deliverables. Prevents disputes about what was included.
Subtotal: The total of all line items before tax, discounts, or other adjustments are applied.
Tax Invoice: An invoice that includes tax information such as the tax rate, tax amount, and the seller's tax identification number. Required by law in many countries for claiming tax credits or deductions.
VAT (Value Added Tax): A consumption tax applied at each stage of production or distribution. Common in Europe, the UK, and many other countries. If you're VAT-registered, you must include VAT on your invoices and display your VAT number.
Withholding Tax: Tax deducted by the client before paying your invoice. Common in international transactions. The client pays the tax authority directly and sends you the remaining amount. You may need to account for this on your invoice.

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Reference

Invoice Glossary

Plain-English definitions for invoicing, billing, and payment terms. Bookmark this page and come back whenever you hit a term you don't recognize.

Accounts Payable (AP): Money a business owes to its suppliers or vendors. When a client receives your invoice, it goes into their accounts payable queue.
Accounts Receivable (AR): Money owed to a business by its clients. When you send an invoice, the amount becomes part of your accounts receivable until the client pays.
Billing Cycle: The recurring time period between invoices. Monthly billing cycles are the most common for ongoing services. Some businesses bill weekly, biweekly, or quarterly.
Credit Note: A document issued to reduce the amount a client owes. Used when you need to correct an invoice, apply a discount after the fact, or account for returned goods. Also called a credit memo.
Debit Note: A document sent to request additional payment, typically when the original invoice undercharged the client. Less common than credit notes but used in wholesale and manufacturing.
Due Date: The date by which payment is expected. Set by the payment terms on the invoice. Missing a due date can trigger late fees if specified in the agreement.
Due on Receipt: Payment is expected immediately when the client receives the invoice. There is no grace period. Common for small projects, one-off services, and retail transactions.
Estimate: A document outlining the expected cost of work before it begins. Not legally binding like an invoice. Also called a quote or quotation. Often converted into an invoice once the work is approved and completed.
Gross Amount: The total amount on an invoice before any deductions like discounts, taxes withheld, or credits are applied.
Invoice: A formal document sent by a seller to a buyer requesting payment for goods or services. It lists what was provided, the amount owed, and when payment is due.
Invoice Number: A unique identifier assigned to each invoice. Used for tracking, accounting, and reference. Keep them sequential (INV-001, INV-002) or date-based (2026-0324-01). Never reuse a number.
Late Fee: A charge added when payment is not received by the due date. Typically a flat fee or a percentage of the invoice total (e.g., 1.5% per month). Must be agreed upon in advance to be enforceable.
Line Item: A single entry on an invoice describing one product or service. Each line item typically includes a description, quantity, unit price, and total for that item.
Net Amount: The amount due after all deductions (discounts, credits, withholdings) have been applied. This is what the client actually pays.
Net 15 / Net 30 / Net 60: Payment terms indicating how many days after the invoice date the payment is due. Net 30 means the client has 30 days to pay. Net 15 gives them 15 days. Net 60 gives them 60. Shorter terms mean faster cash flow for you.
Overdue Invoice: An invoice that has passed its due date without being paid. Following up promptly on overdue invoices is critical for maintaining healthy cash flow.
Payment Terms: The conditions under which payment is expected. Includes the due date, accepted payment methods, late fee policy, and any early payment discounts. Should be clearly stated on every invoice.
Pro Rata: A proportional charge based on partial usage. If a client signs up mid-month for a monthly service, you bill them pro rata for the remaining days rather than the full month.
Proforma Invoice: A preliminary invoice sent before work is completed or goods are shipped. It shows the expected charges and serves as a commitment from both parties. Not a demand for payment, but a confirmation of what the final invoice will look like.
Purchase Order (PO): A document issued by a buyer to a seller authorizing a purchase. Many companies require a PO number before they can process an invoice. Always ask your client if they use PO numbers before invoicing.
Receipt: A document confirming that payment has been received. Sent after the client pays, not before. Different from an invoice, which is a request for payment.
Recurring Invoice: An invoice that is automatically generated and sent at regular intervals for ongoing services. Common for retainers, subscriptions, and maintenance contracts.
Retainer: An upfront fee paid to secure ongoing services. The client pays a fixed amount (monthly, quarterly) and the provider delivers an agreed scope of work. Retainer invoices are typically recurring.
Scope of Work (SOW): A document defining what work will be delivered, by when, and for how much. Referenced on invoices to tie charges back to agreed deliverables. Prevents disputes about what was included.
Subtotal: The total of all line items before tax, discounts, or other adjustments are applied.
Tax Invoice: An invoice that includes tax information such as the tax rate, tax amount, and the seller's tax identification number. Required by law in many countries for claiming tax credits or deductions.
VAT (Value Added Tax): A consumption tax applied at each stage of production or distribution. Common in Europe, the UK, and many other countries. If you're VAT-registered, you must include VAT on your invoices and display your VAT number.
Withholding Tax: Tax deducted by the client before paying your invoice. Common in international transactions. The client pays the tax authority directly and sends you the remaining amount. You may need to account for this on your invoice.

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Create a professional invoice in under 60 seconds. Free, no signup required.