Payments Terms Explained

An ABA routing number (also called an ABA transit number) is a nine-digit code used to identify banks in the U.S. It is mainly used for processing paper checks, wire transfers, and some electronic transactions.

The Accounts Payable Turnover Ratio measures how efficiently a company pays its suppliers over a given period. It tells businesses how many times they pay off their accounts payable balance within a year.

Accounts Payable (AP) refers to the outstanding payments a business owes to suppliers for goods or services received on credit. It is a key part of a company’s short-term liabilities and plays a vital role in managing cash flow and financial obligations.

The accounts receivable turnover ratio is a financial metric used to measure how efficiently a business collects payments from its customers.

Accounts receivable (AR) refers to the money owed to a business by its customers for goods or services that have been provided on credit.

Accrual basis accounting is a method that records income and expenses when they happen, not when money changes hands.

An accrued expense is a financial obligation a business has incurred but has yet to pay.

Accrued revenue is income a business has earned but hasn’t received payment for yet.

An ACH credit is a type of electronic payment made through the Automated Clearing House (ACH) network, which is used for transferring funds between bank accounts. It’s called a “credit” because it involves the sender pushing money into the recipient’s account.

An accounts receivable aging report is a financial tool used by businesses to track outstanding invoices and determine how long they’ve been unpaid.

ACH stands for Automatic Clearing House and is an electronic payment network used to transfer money between bank accounts in the U.S.

AVS is a security tool that checks whether the billing address you enter during a purchase matches the one your bank has on file.

Bad debt is money a business expected to receive but never does.

A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It shows what a business owns (assets), what it owes (liabilities), and the owner’s equity.

A bank reconciliation is the process of matching your business’s financial records with your bank statement to make sure everything lines up.

A bank statement is a document that summarizes all transactions in a bank account over a specific period, usually a month. It shows deposits, withdrawals, payments, fees, and interest earned, giving account holders a clear picture of their finances.

Batch processing in payment processing is when a business groups multiple credit card transactions together and submits them for settlement at the end of the day, rather than processing each payment individually in real-time.

Billable expense income is the money a business or freelancer collects from a client to reimburse costs that were incurred while providing a service.

The Card Security Code (CSC) is a short numeric code printed on your credit or debit card that adds an extra layer of fraud protection.

A Card-Not-Present (CNP) transaction occurs when a payment is made without the physical card being swiped, inserted, or tapped. Instead, the card details—such as the number, expiration date, and CVV—are entered manually, either online, over the phone, or through mail orders.

Cash basis accounting records revenue when money is received and expenses when money is paid. There’s no tracking of unpaid invoices or future bills—just money in and money out.

A cash disbursement is any payment a business makes using cash, a check, or an electronic transfer.

Cash flow refers to the movement of money in and out of a business over a specific period.

Cash on Delivery (COD) is a payment method where customers pay for goods at the time of delivery instead of in advance.

A chargeback is when a customer disputes a transaction with their bank or credit card company, causing the funds to be withdrawn from the merchant’s account.

A chart of accounts (COA) is a structured list of all the accounts used by a business to record financial transactions.

A credit card statement is a monthly report from your credit card issuer that details your account activity, including purchases, payments, fees, and interest charges.

A credit note is a way for businesses to correct an invoice without issuing a direct refund. Instead of sending money back, the business applies the credited amount toward a future purchase.

A CRM (Customer Relationship Management) system is a tool that helps businesses track interactions, manage customer data, and improve relationships with their clients.

Days Payable Outstanding (DPO) measures the average number of days a company takes to pay its suppliers after receiving an invoice.

A digital wallet is an electronic payment system that securely stores credit card, debit card, and banking information for quick and contactless transactions.

Electronic check conversion is a process that allows a paper check to be turned into an electronic transaction, speeding up the processing time and reducing the risk of errors or fraud.

An EFT (Electronic Funds Transfer) is any digital movement of money between bank accounts without using paper checks or cash. EFT payments are used for payroll deposits, bill payments, online purchases, and business transactions.

An Enterprise Resource Planning (ERP) system is a type of software that helps businesses manage and integrate their core processes, such as finance, supply chain, human resources, and inventory.

A general ledger (GL) is the backbone of a company’s accounting system. It’s where all financial transactions—sales, expenses, payroll, and everything in between—are recorded and categorized.

Generally Accepted Accounting Principles (GAAP) are a set of standardized rules that accountants and businesses in the United States follow to ensure financial statements are accurate, consistent, and transparent.

Gross profit margin shows how much money a company keeps from its revenue after covering the direct costs of producing goods or services. It’s expressed as a percentage.

A high-risk merchant account is a type of payment processing account designed for businesses that are considered riskier by banks and payment processors.

Integrated payments allow businesses to connect their payment processing system directly with other software, such as accounting platforms, customer relationship management (CRM) tools, or enterprise resource planning (ERP) systems.

An interchange rate is the fee that businesses pay when processing credit or debit card transactions. This fee is set by card networks like Visa and Mastercard and is paid to the bank that issued the customer’s card.

An invoice is a document that a seller sends to a buyer to request payment for goods or services. It includes details like what was sold, how much it costs, payment terms, and the due date.

An issuer processor is a behind-the-scenes technology provider that helps banks and financial institutions issue and manage payment cards.

An issuing bank is the financial institution that provides credit and debit cards to consumers through card networks like Visa, Mastercard, and American Express. When a customer makes a purchase, the issuing bank verifies whether the cardholder has enough funds or credit available before approving or declining the transaction.

A journal entry is a record of a financial transaction in a company’s accounting system. It includes details like the date, accounts affected, amounts, and a brief description.

A liquidity ratio is a financial metric that measures a company’s ability to meet its short-term debt obligations using its available assets.

A merchant account is a special type of bank account that allows businesses to accept credit card and debit card payments.

A merchant acquirer, also known as an acquiring bank, is a financial institution that processes credit and debit card transactions on behalf of businesses.

A merchant cash advance (MCA) is a way for businesses to get quick access to cash without going through the long, complicated process of a traditional bank loan. Instead of making fixed monthly payments, businesses repay the advance through a percentage of their future sales.

A Merchant Category Code (MCC) is a four-digit number assigned to businesses by credit card networks to classify the type of goods or services they provide.

A Merchant Identification Number (MID) is a unique identifier assigned to a business when it sets up a merchant account to accept credit and debit card payments.

A merchant statement is a monthly report that provides a breakdown of a business’s credit card processing activity.

Net 30 is a common invoicing term that means a customer has 30 days from the invoice date to make a full payment.

An offline credit card transaction happens when a payment is processed without an immediate connection to the card issuer.

A payment aggregator is a service provider that allows multiple businesses to accept payments without needing their own dedicated merchant account.

A payment gateway API connects a website or app to a payment processor, allowing businesses to accept credit cards, digital wallets, and other payment methods.

PCI DSS (Payment Card Industry Data Security Standard) is a set of security requirements designed to ensure that businesses handling credit card transactions protect cardholder data from fraud and breaches.

A payment gateway is a technology that securely authorizes and processes online and in-person credit card payments.

A payment processor is a company or service that facilitates electronic transactions between businesses and customers by transmitting payment data between banks.

A payment service provider (PSP) is a company that helps businesses accept digital payments, including credit cards, debit cards, and electronic transfers.

A POS system is a combination of hardware and software that allows businesses to process payments, track inventory, and manage sales data—all from a single platform.

A preauthorization charge, sometimes called an “auth hold,” is a temporary hold that businesses place on a credit or debit card to make sure there are enough funds before processing a final payment.

A Profit and Loss (P&L) Statement, also known as an income statement, is a financial report that summarizes a company’s revenues, costs, and expenses over a specific period. It shows whether a business is making a profit or incurring a loss.

Prorated means adjusting a cost or amount based on a specific portion of time or usage. Instead of paying (or receiving) the full amount, you only pay for what you actually use. This often applies to rent, salaries, service fees, and refunds.

A purchase order (PO) is a document that a buyer sends to a seller to request goods or services. It acts as an official order, listing what’s being purchased, how much, the price, and when it should be delivered.

The quick ratio, sometimes called the acid-test ratio, is a financial measure used to assess how well a company can pay off its short-term debts using its most liquid assets.

Recurring billing is an automated process that charges customers at regular intervals for products or services. It’s commonly used by businesses that offer subscriptions, memberships, or ongoing services.

Remittance advice is a document sent by the payer to the payee to provide details about a payment. It serves as a record that the payer has made a payment and helps the payee match it with their outstanding invoices or bills.

Remote Deposit Capture (RDC) is a banking technology that allows businesses and individuals to deposit checks without visiting a bank. By using a scanner or mobile app, users can take a picture of a check and submit it electronically for processing.

A sales order is a document that confirms a customer’s purchase request before the order is fulfilled. It serves as a bridge between the sales process and order fulfillment, ensuring accuracy in pricing, product details, and delivery expectations.

Secure Socket Layer (SSL) is a security protocol that encrypts data transmitted between a customer’s browser and a website, ensuring that sensitive information—like credit card details—is protected from cyber threats.

A Statement of Retained Earnings is a financial report that shows how a company’s net income is reinvested into the business over a specific period. It tracks changes in retained earnings—profits that are kept in the company rather than distributed as dividends.

A Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to a product by a retailer or manufacturer to track inventory and sales.

Straight Through Processing (STP) is an automated payment process that allows transactions to be completed electronically without manual intervention.