Accounts Payable & Accounts Receivable Glossary

Accounts Payable

Accounts payable represent amounts a business owes to suppliers for goods or services received on credit. It is a short-term liability recorded on the balance sheet. Effective accounts payable management ensures timely payments, strong supplier relationships, and healthy cash flow.

Accounts Receivable

Accounts receivable are amounts owed to a business by customers for goods or services provided on credit. It is a current asset and plays a critical role in cash flow management. Proper receivables tracking improves liquidity and reduces bad debts.

Trade Payables

Trade payables are obligations owed to suppliers for inventory or services directly related to business operations. They form a major component of accounts payable and must be managed carefully to maintain vendor trust and avoid late payment penalties.

Trade Receivables

Trade receivables arise from credit sales to customers. They are recorded as current assets and represent future cash inflows. Effective monitoring helps businesses reduce overdue balances and improve working capital.

Vendor

A vendor is a supplier that provides goods or services to a business. Vendors issue invoices that become part of accounts payable. Maintaining accurate vendor records supports efficient payment processing and compliance.

Customer

A customer is an individual or entity that purchases goods or services, often on credit terms. Customer balances form accounts receivable and must be monitored to ensure timely collections and minimize credit risk.

Invoice

An invoice is a commercial document issued by a seller requesting payment for goods or services. Invoices form the basis of accounts payable and receivable transactions and must include accurate details for compliance and reconciliation.

Supplier Invoice

A supplier invoice details amounts payable for goods or services received. Accurate processing of supplier invoices ensures correct expense recognition, VAT compliance, and timely payments.

Customer Invoice

A customer invoice requests payment for goods or services sold on credit. Proper invoicing supports faster collections, accurate revenue recognition, and VAT compliance in the UAE.

Invoice Processing

Invoice processing involves receiving, reviewing, approving, and recording invoices. Efficient processing reduces errors, prevents duplicate payments, and improves AP cycle efficiency.

Payment Terms

Payment terms specify when and how payments must be made, such as Net 30 or Net 60. Clear payment terms help manage cash flow and avoid disputes with suppliers and customers.

Credit Terms

Credit terms define the conditions under which customers can pay later. Properly structured credit terms balance sales growth with cash flow risk.

Due Date

The due date is the deadline by which an invoice must be paid. Monitoring due dates prevents late payments, penalties, and damaged relationships.

Aging Report

An aging report categorizes outstanding payables or receivables by age. It helps businesses track overdue balances and prioritize collections or payments.

AP Aging

Accounts payable aging shows outstanding supplier invoices by due period. It supports cash planning and timely vendor payments.

Outstanding Balance

Outstanding balance is the unpaid amount on an invoice. Managing outstanding balances ensures accurate financial reporting and cash flow forecasting.

Credit Control

Credit control manages customer credit limits and payment behavior. Strong credit control reduces overdue receivables and bad debts.

Credit Limit

A credit limit is the maximum amount a customer can owe. Setting limits helps control exposure and manage receivables risk.

Bad Debts

Bad debts are receivables that are unlikely to be collected. Writing off bad debts ensures accurate financial statements and realistic asset values.

Allowance for Doubtful Debts

This allowance estimates receivables that may not be collected. It reflects prudent accounting and improves financial accuracy.

Collections

Collections involve follow-up actions to recover overdue receivables. Effective collections improve cash flow and reduce credit losses.

Payment Processing

Payment processing involves executing payments to suppliers or receiving payments from customers. Efficient systems reduce delays and errors.

Bank Transfer

Bank transfers are common payment methods used for settling AP and AR balances. Accurate recording ensures proper reconciliation.

Cheque Payment

Cheque payments are traditional settlement methods requiring careful tracking to avoid errors and delays.

Electronic Payments

Electronic payments include online transfers and automated systems that improve speed, security, and efficiency.

Reconciliation

Reconciliation compares accounting records with external statements to ensure accuracy. AP and AR reconciliations prevent discrepancies.

Vendor Reconciliation

Vendor reconciliation ensures supplier statements match internal records. It helps identify missing invoices or payment errors.

Customer Reconciliation

Customer reconciliation confirms receivable balances with customer records to ensure accuracy.

Three-Way Matching

Three-way matching compares purchase orders, invoices, and delivery notes. It prevents overpayments and fraud.

Purchase Order

A purchase order is a document authorizing a supplier to provide goods or services. It supports AP control and audit trails.

Goods Receipt Note (GRN)

A GRN confirms receipt of goods. It is essential for accurate invoice matching and payment approval.

Debit Note

A debit note is issued to adjust or reduce an invoice amount. It corrects billing errors or returns.

Credit Note

A credit note reduces the amount payable or receivable due to returns or adjustments.

Advance Payment

An advance payment is made before receiving goods or services. It must be tracked carefully to ensure proper settlement.

Prepayments

Prepayments are advance payments recorded as assets until services are received. Accurate tracking ensures correct expense recognition.

Accrued Payables

Accrued payables are expenses incurred but not yet invoiced. They ensure expenses are recorded in the correct period.

Accrued Receivables

Accrued receivables represent revenue earned but not yet invoiced. They support accurate revenue reporting.

Early Payment Discount

An early payment discount encourages customers to pay invoices sooner, improving cash flow.

Late Payment Penalty

Late payment penalties are charges imposed for overdue payments. Monitoring prevents unnecessary costs.

Cash Flow Management

Cash flow management ensures sufficient liquidity by balancing receivables collections and payables payments.

Working Capital

Working capital reflects short-term financial health and is directly affected by AP and AR efficiency.

Days Payable Outstanding (DPO)

DPO measures how long a business takes to pay suppliers. It affects cash flow and vendor relationships.

Days Sales Outstanding (DSO)

DSO measures how quickly receivables are collected. Lower DSO improves liquidity.

Cash Conversion Cycle

The cash conversion cycle shows how long cash is tied up in operations, influenced by AP and AR.

Invoice Approval

Invoice approval ensures invoices are verified before payment. It prevents fraud and errors.

Dispute Management

Dispute management resolves invoice disagreements. Efficient handling avoids payment delays.

Vendor Management

Vendor management maintains strong supplier relationships and reliable payment practices.

Customer Relationship Management

Effective customer relationship management supports timely collections and retention.

AP Controls

Accounts payable controls prevent unauthorized or duplicate payments.

AR Controls

Accounts receivable controls ensure accurate billing and collections.

Segregation of Duties

Segregation of duties separates responsibilities to reduce fraud risk.