Proforma invoice
A preliminary, quote-like bill sent before delivery — not a demand for payment or a valid tax invoice.
A proforma invoice is a preliminary bill issued before goods are delivered or work is completed. It shows the expected items, quantities, prices and terms so the buyer can approve the purchase, arrange budget, or set up financing and customs paperwork.
Crucially, a proforma invoice is not a demand for payment and is not a valid tax invoice — you cannot use it to reclaim tax. Once the sale is confirmed, you issue a final commercial (or tax) invoice with a real invoice number.
See also: Purchase order (PO), Credit note, Net payment terms
Credit note
A document that reduces what a customer owes after an invoice — for returns, overcharges or corrections.
A credit note (or credit memo) reduces the amount a customer owes after an invoice has already been issued. It is used for returns, overcharges, post-sale discounts, or to correct a billing error.
A credit note references the original invoice number and is recorded as a negative entry against it, so your books and the customer's stay reconciled.
See also: Debit note, Proforma invoice
Debit note
A document that increases an amount owed or requests an adjustment — the counterpart to a credit note.
A debit note formally records an increase in the amount owed or requests an adjustment to a transaction — for example, an undercharge on a previous invoice, or goods a buyer is returning to a supplier.
It is the counterpart to a credit note. Where a credit note decreases the balance, a debit note increases it (or signals an adjustment is due), always referencing the related invoice.
See also: Credit note, Purchase order (PO)
Purchase order (PO)
A buyer's document ordering goods/services at agreed quantities and prices, issued before the invoice.
A purchase order is a document the buyer sends to the seller to order goods or services at agreed quantities and prices. It comes before the invoice and creates a record of what was ordered.
The seller fulfils the PO and then invoices against its PO number. Matching the invoice to the purchase order (and delivery receipt) is called "PO matching" or three-way matching, and it is how larger buyers control spending.
See also: Proforma invoice, Remittance advice, Net payment terms
Remittance advice
A note from the payer telling a supplier which invoices a payment covers.
Remittance advice is a note a payer sends with, or instead of, a payment to tell the supplier which invoices the payment is settling. It typically lists invoice numbers and amounts.
It matters most when a customer pays several invoices at once or pays a partial amount, because it lets the supplier apply the cash to the correct invoices instead of guessing.
See also: Accounts receivable (AR), Purchase order (PO)
Accounts receivable (AR)
Money customers owe a business for invoices issued but not yet paid — an asset.
Accounts receivable is the total money customers owe a business for invoices that have been issued but not yet paid. It appears as an asset on the balance sheet because it is cash you expect to collect.
"AR aging" groups unpaid invoices by how overdue they are (current, 30, 60, 90+ days) so you can chase the oldest first and manage cash flow.
See also: Accounts payable (AP), Late fee, Net payment terms
Accounts payable (AP)
Money a business owes suppliers for bills received but not yet paid — a liability.
Accounts payable is the money a business owes its suppliers for bills it has received but not yet paid. It is the mirror image of accounts receivable, recorded as a short-term liability.
Managing AP well means paying on time to keep supplier relationships healthy while holding onto cash as long as the agreed terms allow.
See also: Accounts receivable (AR), Net payment terms
Net payment terms
"Net 30" and similar terms set how many days after the invoice date payment is due.
"Net" payment terms state how many days after the invoice date the full amount is due. Net 30 means due in 30 days; Net 7 and Net 14 keep cash flowing faster; Net 60 and Net 90 are common with large or government buyers.
You can pair net terms with an early-payment discount written like "2/10 Net 30" — 2% off if paid within 10 days, otherwise due in 30.
Use the net terms calculator to work it out for your own numbers.
See also: Late fee, Accounts receivable (AR), Recurring invoice
Late fee
A charge added to an invoice not paid by its due date — often ~1.5% per month or a flat amount.
A late fee (or late-payment charge) is added to an invoice that is not paid by its due date. It is commonly a percentage per month — around 1.5% is typical — or a flat amount per overdue invoice.
To be enforceable, state the late-fee policy clearly on the invoice and in your contract or terms of service before the work begins.
See also: Net payment terms, Accounts receivable (AR)
Recurring invoice
An invoice sent automatically on a repeating schedule for ongoing services or subscriptions.
A recurring invoice is generated and sent automatically on a repeating schedule — weekly, monthly, quarterly or yearly — for ongoing services, memberships or subscriptions.
It saves you from recreating the same invoice each cycle and helps clients budget for a predictable charge. Each cycle still produces a normal, numbered invoice.
See also: Net payment terms, Retainer
Retainer
An upfront payment that reserves a provider's time or services over a period.
A retainer is an upfront payment that reserves a provider's time or services. It can be a deposit that is drawn down as work is completed, or a recurring fee that keeps a professional on call for a set scope each month.
On an invoice, show the retainer received and deduct it from the balance due, so the client can see what has already been paid.
See also: Recurring invoice, Net payment terms
