Here is a glossary of both general and credit related business terms. Unless otherwise noted, these entries were taken from Credit Today's Credit and Collection Handbook.

Absolute Priority: A provision of the bankruptcy code that senior creditors must be paid in full before junior creditors receive anything. In turn, junior creditors must be paid in full before stockholders receive any money from the bankrupt estate.

Accelerated Cost Recovery System: A method for accelerated depreciation of assets.

Acceptance: The drawee's act of accepting a draft calling for the drawee/buyer to pay its value at maturity. In contract law, acceptance refers to the act of agreeing to or accepting an offer.

Account Party (applicant): The party that instructs its bank to open a letter of credit, and on whose behalf the issuing bank agrees to make payment. The buyer.

Accounts Payable: The amounts companies owe to suppliers for goods and services delivered on open account terms.

Accounts Receivable (A/R): This represents money owed to the company by customers for goods sold or services provided or rendered on open account credit terms that has not yet been collected.

Accounts Receivable Turnover Ratio: Total Revenue for the last 12 months divided by Average Accounts Receivable for the lat 12 months.

Advance Rate - Referred to in the context of accounts receivable securitization, this is the maximum amount of cash - expressed in percentage terms - that a lender will advance on receivables.
Note: For more on this concept, please refer to our article: Credit Department Stress Test

Advice of a Letter of Credit: A notice from a bank verifying that an authentic letter of credit was issued by another bank, specifying the dollar amount of that letter of credit, the beneficiary and the other particulars.

Advising Bank: A correspondent bank of the issuing bank; the advising bank operating in the exporter's country receives a letter of credit or amendment(s) from the issuing bank. The advising bank notifies the seller of the existence and the authenticity of the Letter of Credit.

Affiliates: Business concerns that are affiliates of each other are related to the extent that (1) they exert power or control over the operations of the other company, or (2) a person or corporation has the power to control both companies. Corporations are often affiliated through common ownership.

Agent: One who performs services for another under an agreement that makes the agent subject to the control of the other person or company.

Agreement: An understanding reached between two or more parties regarding their rights and obligations relating to a specific subject matter.

Air Waybill [of lading]: A shipping document used by airlines for airfreight shipments. A signed receipt and contract to deliver goods by air. The air waybill contacts a description of the product, as well as shipping instructions. Generally, air waybills are not negotiable.

Allowance for Doubtful Accounts: When a creditor provides goods or services on open account terms it is inevitable that some debts will not be collected. An estimate of how much of the total AIR that is uncollectable is recorded in the Allowance for doubtful accounts.

Amendment: A document confirming a change to the terms or conditions of a Letter of Credit. The opening bank makes amendments at the request of the seller with the approval of all parties including the applicant; the issuing bank, the beneficiary, and the confirming bank [if one exists].

Annual Report: A report that a company publishes for its stockholders at the end of the year.

Antitrust: Federal laws prohibiting businesses from price setting, or other illegal activities that tend to circumvent the free market operations of supply and demand.

Antiviral Software Program: Software that monitors a computer for viruses in order to eliminate them before significant damage occurs.

Applicant: The buyer that opens a letter of credit through its bank.

Arbitration: A method of dispute resolution in which the disputing parties [such as a buyer and a seller] agree to submit their dispute to an impartial third party [the arbitrator] who will hear testimony and review evidence provided by both parties.

Arbitrator: A person selected to decide a dispute between parties, when that dispute is subject to an arbitration agreement or clause.

AR Securitization - A process in which a company's receivables are sold to a trust (or vehicle) in return for cash, typically on a revolving basis.
Note: For more on this concept, please refer to our article: Credit Department Stress Test

Asset: Anything of value that a firm owns or controls.

Asset Liquidity: The ease with which an asset can be promptly converted into cash.

Asset Turnover Ratio: An efficiency ratio, the asset turnover ratio is Total Revenues for an accounting period divided by the average Total Assets for that same period.

Assignment: An assignment [such as an assignment for the benefit of creditors] involves the transfer of property rights or title to another party by agreement-usually made in writing.

Audit: The systematic examination of the books and records of a company to ascertain whether all transactions were recorded properly.

Audit: In another context from that referred to immediately above, the term audit refers to the audit by states of accounts receivable for unclaimed property. States have the right to audit a company's books and records for escheatable property and to determine if you have proper procedures for handling unclaimed property.

For more info on unclaimed property escheatment issues, see Credit Today's Unclaimed Property & Escheatment Resources Center

Auditor's Opinion Letter: A summary of the findings of a CPA firm engaged to examine and to audit a company's financial statements.

Automated Clearinghouse: A facility used by financial institutions to distribute electronic debit and credit entries between member banks to settle such transfers.

Avoidance Powers: Avoidance powers grant the trustee in a bankruptcy the power to recover property that was fraudulently transferred, or involves a preferential transfer by the debtor prior to the bankruptcy filing date.

Award: The written document of determination by a Court or an arbitrator on the matter submitted for adjudication or review.

Balance Sheet: A report listing a company's assets, its liabilities and the equity at a specific date.

Bandwidth: A measure of the data transmission and receipt capability of a circuit or a system.

Banker's Acceptance: A banker's acceptance is a draft drawn and accepted by a bank.

Bankruptcy: A proceeding in U.S. federal court in which a debtor may be legally released from paying debts legitimately owed to others.

Bankruptcy Court: A division of the U.s. District Court System that deals exclusively with bankruptcy cases.

Beneficiary: The individual or company in whose favor a Letter of Credit is issued and who receives payment provided the terms and conditions of the L/C are met.The beneficiary of a Letter of Credit is normally the seller.

Bill of Lading: A document issued by a carrier to a shipper/seller evidencing the receipt of goods for shipment. A bill of lading is also a contract between the owner of the goods and the carrier. It is both a receipt for merchandise and a contract to deliver the merchandise as freight. In some forms, a bill of lading may also represent title to the goods.
For a case study involving bills of lading, see our article: Is the Warehouse Responsible For Payment in this SNAFU? Exploring Documents of Title

Bond: A form of debt. A debt instrument issued by a government agency or a private company promising repayment of the original balance at a specific date along with periodic interest payments.

Bonded Warehouse: A warehouse authorized by local customs authority where goods are stored until the import duties are paid [if an incoming shipment is involved], or until the goods in question are exported.

Book Value: Book value, an accounting term, is the original acquisition cost of a fixed asset minus accumulated depreciation or amortization.

Bookmarking: A shortcut method of accessing one or more favorite web sites.

Cash Purchase Price - Referred to in the context of accounts receivable securitization, cash purchase price is based on the advance rate, and is how much cash is advanced on the receivable portfolio. It can be expressed in actual dollars on as a percent of A/R.
Note: For more on this concept, please refer to our article: Credit Department Stress Test

Cash Discount: A deduction allowed from the face amount of the invoice if payment is received within a specified number of days after the invoice date.

Cash Equivalents: Any short-term securities listed as current assets that can readily be converted into cash.

Certificate of Inspection: A document prepared by an independent third party that certifies the merchandise was in good condition immediately prior to its shipment. This is often used in connection with the sale of perishable goods.

Certificate of Manufacture: A statement issued by the producer/seller that the goods have been manufactured and are now available to the buyer.

Certificate of Origin: A document required by the customs authority of certain countries for tariff assessment purposes, verifying the country of origin of the goods to be imported. Sometimes countries use consular visas from their embassy or missions to certify the country of origin. The country of origin is the country where the goods were grown, manufactured, mined or harvested.

Chapter 7: A bankruptcy proceeding involving the liquidation of the assets of the debtor for the benefit of its creditors. In a Chapter 7 filing, a trustee is appointed to collect and liquidate certain assets and then to distribute the proceeds to creditors according to a specific order of priority.

Chapter 11: Reorganization under the V.S. Bankruptcy Code typically used by corporations.

Chapter 12: A reorganization suitable for family farmers.

Chapter 13: A reorganization bankruptcy suitable for individuals with a regular income. The debtor pays creditors over a period of time [typically 3 to 5 years] according to a payment plan approved by the Court.

CIF: The acronym for Cost, Insurance and Freight, CIF terms mean that the seller has the same responsibility as under CFR but the seller also must contract for and pay for maritime insurance against loss or damage to the goods while in transit to the named port of destination.

Civil Action: In most jurisdictions, actions are divided into criminal and civil actions. Civil actions include lawsuits by and among private parties.

Class of Creditors: In a bankruptcy case, there are different classes of creditors. A class of creditors is a group of creditors entitled to the same treatment in the case under the V.S. Bankruptcy Code.

Claused Bill of Lading: A bill of lading that contains notations indicating the goods or the packaging were damaged in transit.

Clean Bill of Lading: A receipt for goods issued by a carrier with an indication that the goods were received in good condition with no damage apparent.

Collateral: Assets or property that is subject to a security interest, or property pledged to secure repayment of a debt or other obligation.

Collecting Bank: The bank that acts as an agent for the seller in collecting either payment, or a time draft from the buyer and forwarding it to the seller or the seller's bank.

Commercial Invoice: A commercial invoice acts as a bill for goods from the seller to the buyer.

Common Carrier: An individual, partnership, or corporation that transports goods in return for compensation. Carriers typically include steamship companies, trucking companies, overnight delivery services, airlines, and railroads.

Confirmed Letter of Credit: A letter of credit to which a second bank adds its pledge or guaranty of payment in the event of payment default by the issuing bank for reasons other than a discrepancy.

Consignee: The party to whom goods are shipped by the seller. The firm or person authorized to receive the cargo.

Consolidated Financial Statements: Financial statements on a company and one or more subsidiaries in which the financial performance of the related companies is consolidated rather than identified separately.

Consular Documents: A document such as a bill of lading, certificate of origin or other document such as a special, detailed invoice form signed by the consul of the exporting country-normally in the language of that country. Consular documents are used by customs officials in the importing country to verify the value of the shipment.

Conversion: In bankruptcy, the process of converting a case from one chapter to another. For example, a Chapter 11 reorganization is often converted to a Chapter 7 liquidation.

Corporation: A corporation is a form of business organization that may have many owners. A corporation is a fictitious legal entity that has rights and duties that are independent of the rights and the duties of real persons. A corporation can be either privately held or public. A corporation is owned by its stockholders, and it is created under the authority of state law.

Co-signer: A person responsible for repaying a debt if the borrower/debtor defaults on payment.

Cost and Freight [ C&F Named Port]: All cost of goods and transportation to the named port are to be included in the price quoted by the seller to the buyer. The buyer is responsible for insurance while the goods are aboard the ship.

Cost of Goods Sold: The cost of producing finished goods including materials and labor.

Credit bureau: A company that compiles credit reports based on information it gathers from a variety of sources, and forwards this information to subscribers in the form of credit reports.

Credit History: A record of how a customer [a consumer or business customer] has paid credit accounts in the past.

Credit Interchange Group: A group of creditors who form an association to regularly share credit information about mutual customers.

Credit Report: A document that details a consumer or a company's credit history using information provided by banks, by trade creditors [including credit card companies and department stores], and from public records searches [such as those relating to bankruptcy filings or lawsuits].

Credit Reporting Agency: A company that gathers, files and sells information to creditors to facilitate their decisions about whether or not to extend credit.

Creditor: A creditor is any person, corporation or other entity to which a debt is owed. The term includes a general creditor, an unsecured creditor, a secured creditor, or a lien creditor.

CRF: An Incoterm requiring that the seller bear the cost and freight needed to deliver the goods at the named port of shipment. The risk of loss or damage one the goods have passed over the ship's rail passes to the buyer at that point.

Current Asset: An asset the company expects to convert into cash within one year.

Current Liabilities: Obligations of a company to creditors that are expected to be paid within one year or less.

Current Ratio: A measure of a company's ability to pay current liabilities as they become due. The Current ratio is calculated by dividing current assets by current liabilities.

Data Encryption: A process that transforms electronic messages into seemingly random streams of characters in order to protect the security of the data against electronic interception.

Debt: Money borrowed that must be repaid.

Debt to Equity Ratio: This is total debt for the most recent reporting period divided by total shareholders' equity for the same period.

Debtor: A person, corporation or other entity that owes a debt or debts to its creditor(s).

Debtor in Possession: In a Chapter 11 bankruptcy filing, the owner of the corporation is allowed to retain control of the company and to use its assets while reorganizing the company in order to present a plan to creditors for their consideration and vote. They are said to be "debtors in possession."

Deferred Purchase Price - Referred to in the context of accounts receivable securitization, this is the difference between the cash purchase price and the full face value of a receivable.
Note: For more on this concept, please refer to our article: Credit Department Stress Test

Depreciation: An accounting concept that allows the owner of an asset to record an allowance for the gradual diminishment in value of an asset over the estimated useful life of that asset.

DIP: A debtor in possession.

Disclosure Statement: In a bankruptcy case, a document prepared by the debtor that describes the terms of the proposed plan of reorganization.

Discrepancy: Any non-compliance of documents with the terms and conditions contained in the Letter of Credit [L/C] is a discrepancy. A discrepancy also exists if the documentation is presented after the deadline.

Discharge: The bankruptcy court order that releases the debtor from additional liability and prevents creditors owed these debts from taking further action against the debtor for collection.

Dividends: Cash payments from a company's profits [in the form of cash on hand] paid to stockholders.

Documentation Requirements: On a letter of credit, documentation requirements often include invoices, drafts, a bill of lading, certificates of origin, a marine insurance policy, inspection reports and or statements from the shipping party.

Documents against Payment: Also referred to as a time draft, documents against payment involve instructions that a shipper gives to its bank that the documents attached to a draft are deliverable to the drawee [the buyer] only against a payment of the draft.

Dormancy Period: A term used in connection with unclaimed property or "escheatment" issues. This refers to the amount of time that must pass before unclaimed property becomes escheatable. For most states this period is three or five years. However, this may vary depending on the type of property.

For more information check out Credit Today's Unclaimed Property & Escheatment Resources Center

Download: To copy or transfer data from one computer to another.

Draft: A negotiable instrument that is used as a formal demand for payment.

Drawee bank: The bank listed as the payer under the letter of credit.

Due Diligence: Due diligence can mean many things relating to research. In one instance, in relation to unclaimed property or "escheatment" issues, it refers to the requirement that the holder of unclaimed property (credit balances on the books, for example) make reasonable attempts to contact the owner before hading the property over to the state.

For more info on this concept, see Credit Today's Unclaimed Property & Escheatment Resources Center

Email: A text message sent to an individual or group via the Internet. Email messages may include attachments.

EBIT: Earnings before interest and taxes.

EBITD: Earnings before interest, taxes and depreciation.

EBITDA: Earnings before interest, taxes, depreciation, and amortization.

Electronic Data Interchange: The computer to computer exchange of common business documents over telephone lines using a standardized electronic format.

Encryption: Changing a document into code that is not readable except by a person having an electronic key to decode the document.

Equal Credit Opportunity Act: A federal law that requires credit granters to make credit available without discrimination on the basis of age, sex, marital status, nationality, or national origin.

Escheatment: The process of turning over unclaimed or abandoned property to a state authority. To turn over your unclaimed property is "to escheat." From the perspective of credit and A/R departments, unclaimed property is typically a credit that has never been used or requested. It may also include overpayments, unused credit memos, or unused merchandise credits.

By law, the ownership of the property (the credit balance), if it is not claimed by the customer, reverts to the state.

For more info on escheatment, see ==> Credit Today's Unclaimed Property & Escheatment Resources Center

Equity: That portion of the company's assets that belongs to the stockholders after the creditors have been satisfied.

Exchange Rate: The number of units of one currency that must be exchanged for one unit of another currency.

Freight Forwarder: An international shipping specialist. Freight forwarders act as the seller's agent to help move cargo from origin to destination. A freight forwarder can offer advice, compile and control documents, and arrange for shipments.

Generally Accepted Accounting Principles [GAAP]: A set of rules and financial reporting requirements that companies follow that wish to have their financial statements audited.

Global Business Organization or GBS - A hybrid of the concept of off-shoring, in which a company shifts a function off-shore. With a GBS, instead of outsourcing it to a third party, the business owns and operates the off-shore office themselves, taking advantage of the much lower cost of staffing.

Goodwill: The excess above fair market value that a company paid for assets acquired.

Gross Margin: Net sales minus Cost of Goods Sold equals Gross margin. Gross margin measures the amount of Gross Sales Revenues left after paying all direct production expenses.

Import Certificate: The certificate is a method by which the government of a country can exercise control over what is being imported into the country. In some instances and in some countries products cannot be imported without an import certificate.

Import License: A document required by some national governments authorizing the import of goods or commodities into the country.

Income after Tax: The amount remaining of after all expenses and taxes have been deducted from revenues.

Income Statement: A financial statement that presents the results of a company's business operations for a specific accounting period such as a fiscal year or a quarter. This document is sometimes referred to as a Profit and Loss Statement.

Incoterms: Standardized international trade terms devised with the intent of providing a common language and set of definitions for international buyers and sellers. The codification of certain terms by the International Chamber of Commerce to define which parties incur certain costs and at what point specific costs or risks are incurred.

Insolvency: The condition of being unable to pay one or more legal obligations [debts] as they come due.

Inspection Certificate: A certificate, usually issued by an independent third party, attesting that the goods to be shipped to the buyer conform to the order.

Intangible Asset: Any non-physical asset [such as goodwill, trademarks, and patents] that has value to the company.

Interest Coverage Ratio: Earnings before interest and taxes for a particular accounting period divided by interest expense for that same period.

Internet: An international network of computer networks that connects businesses, academic institutions, individual web pages, and government web sites to each other.

Inventories: Inventories consist of raw materials, work in process and finished goods inventories. Inventories are current assets.

Inventory Turnover Ratio: This ratio measures how quickly inventory is sold. It is defined as the Cost of Goods Sold divided by the Average Inventory.

Involuntary Bankruptcy: Creditors may petition the Bankruptcy Court to force a delinquent debtor into bankruptcy subject to the rules listed in the U.S. Bankruptcy Code.

Irrevocable Letter of Credit: A Letter of Credit that cannot be modified or canceled without the consent of the buyer, the seller, the issuing bank, the advising bank, and the confirming bank [if applicable]. An irrevocable LIC is one in which the buyer's bank must pay even if the buyer defaults.

Issuing Bank: The bank that issues the Letter of Credit and agrees to make payment in accordance with the terms of the LIC provided that the beneficiary submits documents that conform to the LIC requirements within the time line described in the LI C.

ISP: An acronym for Internet Service Provider. A company that provides users with access to the Internet.

Judgment: The official court decision regarding an action or lawsuit.

Latest Date to Present Documents: Relating to a Letter of Credit, documents must arrive at the negotiating bank within 21 days from the latest shipping date but before the expiration date of the Letter of Credit.

Latest Ship Date: Relating to a letter of credit, the shipping documents must be dated on or before the latest ship date.

Lawsuit: A legal action initiated by a plaintiff against a defendant. A lawsuit is based on an assertion that the defendant failed to perform a legal duty resulting in harm to the plaintiff.

Letter of Credit: An internationally recognized contract drawn between a buyer, a seller, and the buyer's bank and issued at the request of the buyer.

Leverage: At its most basic, a company's use of debt rather than equity to support and to grow the business.

Liabilities: Liabilities include short and long term debts owed to both secured and unsecured creditors.

Libel: The defamation of an individual by statements made in writing.

Lien: The legal right to retain the lawful possession of the property of another until the owner of the property fulfills a legal duty to the person holding the property. A legal claim on the property of another.

Limited Liability Corporation: A form of business structure that is a hybrid between a partnership and a corporation. The members [stockholders] are shielded from personal liability, but the profits of the business are passed directly to the owners without the corporation paying corporate income taxes.

Limited Partnership: A business structure comprised of one or more general partners and one or more limited partners. The limited partners have no voice in the operations of the business and have limited personal liability. The general partners have unlimited personal liability and manage the day-to-day operations of the business.

Liquidity: The degree to which the assets of a company can be converted into cash to meet obligations.

Liquidity Ratios: These ratios measure the degree of a company's liquidity.Common liquidity ratios include (1) the current ratio, (2) the quick or acid test ratio, and (3) the inventory turnover ratio.

Long Term Debt: A debt a company will not have to repay for at least one year.

Long Term Debt to Equity Ratio: This ratio is total long-term debt for a fiscal period divided by total shareholders' equity for that same period.

Marine Bill of Lading: An insurance policy covering loss or damage to goods while at sea.

Market Value: The amount an unrelated party would be willing to pay for an asset.

Marketable Securities: Assets such as stocks and bonds that companies own and can readily convert into cash.

Negative Report: In the context of unclaimed property or "escheatment" issues, this refers to a report submitted to a state in which the Company conducts business that declares that the Company has no unclaimed property outstanding. The National Association of Unclaimed Property Administrators (NAUPA) maintains an electronic reporting system which is widely accepted for each state.

For more info on unclaimed property and escheatment, see Credit Today's Unclaimed Property & Escheatment Resources Center

Negotiation: Relating to a Letter of credit, negotiation is the process of submitting documents to the bank to obtain payment under the terms of the L/C.

Net Change in Cash and Cash Equivalents: Taken from the Statement of Cash Flows, net change in cash and cash equivalents is calculated by adding cash from operating, investing and financial activities. The change can be positive or negative.

Net Income: Total revenues minus total expenses, where revenues exceed expenses. Net income is sales minus cost of goods sold minus operating expenses plus or minus extraordinary gains or losses minus taxes.

Net Loss: Total revenues minus total expenses, where expenses exceed revenues.

Net Profit Margin: This is calculated by dividing the Net Income after Tax by Revenue.

Net Sales: A company's Gross Sales minus returns and allowances.

Net Worth: The excess of assets over liabilities.

Newsgroups: Areas on the Internet reserved for discussions on specific topics. A newsgroup can be thought of as an electronic bulletin board where people with similar interests read and post messages.

Non-Exempt Property: Assets owned by debtors that are not exempt and may be seized and sold by the trustee to pay claims in a bankruptcy.

Ocean Bill of Lading: A B/L indicating that the exporter consigns a shipment to an international carrier for transportation to a specified foreign port.

Opening Bank: Relating to a letter of credit, the opening bank issues the letter of credit at the request of the buyer.

Operating Expenses: Costs associated with a company's operations but unrelated to the manufacturing process.