Glossary of Billing Terms

A   B   C   D   E   F   G   I   M   N   O   P   R   S   T   U   V   W   Z

A

  • Account hierarchy: A set of accounts organized based on their relationship to each other. A hierarchical group is headed by a parent account with child accounts beneath it (i.e., parent-child relationships).
  • Accounting code: Also called GL Code, this is a unique reference code given to a specific account to facilitate the reconciliation of transactions across applications.
  • Accounting period: A period of time (typically a month) during which financial transactions are collected and reviewed and revenues and expenses are recognized.
  • Activation fee: A one-time charge to initiate service. Sometimes referred to as a setup fee.
  • Aging: The ability to identify invoices or balances owed which are overdue by a specified number of days (e.g., 30 days past due).
  • Amendment: A change made to a subscription or contract (e.g., payment terms, number of users, support level, etc.)
  • Annual contract value (ACV): The total value of a contract over a 12-month period.
  • Annual Recurring Revenue (ARR): This refers to the normalized annual revenue that a company expects to receive from its subscribers in return for products and services provided.

B

  • Balance forward: Any unpaid portion of a previous bill.
  • Balance sheet account: A summary on a specific date of the debits and credits in the general ledger.
  • Bill run: The generation of one or more invoices based on one or more conditions, such as a date range or customer type.
  • Billing cycle: How often a customer is billed. For example, a customer on a monthly billing cycle will get an invoice once a month and a customer on a quarterly billing cycle will get an invoice once a quarter.
  • Billing in advance: Also referred to as Prepaid. Charges for goods or services to be provided at a later date.
  • Billing in arrears: Also referred to as Postpaid. Charges for goods or services delivered in a previous billing period.
  • Booking: An operational metric that calculates the sum or all charges on an order.
  • Bundle: A package or set of goods or services which are offered as a combined product for which there is a specified price.

C

  • Customer Acquisition Cost (CAC): CAC refers to the money spent to convert prospects into buyers of your software and services.
  • Chart of accounts (CoA): A complete listing of accounts (e.g., accounts receivable, cash) in an accounting system
  • Churn: An operational metric (measured in dollars or units) that looks at customer attrition as calculated by the number of customers who discontinue service during a specific time period, divided by the number of customers at the start of the period.
  • Collections: Transfer of delinquent accounts to a collection agency or internal collections department for full or partial recovery of the amount owed.
  • Conditional rating: A rate that is dependent on another product rate or quantity that a customer has on their contract, on a product instance, or on a package.
  • Coupon code: A code that prospects enter to receive an incentive to purchase such as a dollar amount off or a discount amount.
  • Credit: An accounting entry that either 1) increases a liability or equity account, or 2) decreases an asset or expense account.
  • Credit terms: The terms that indicates when payment is due for sales made on account. Terms are noted by preceding the number of days to pay with the word “Net” (i.e., Net 30 Terms). Invoices note their credit terms in the “Terms” field or the “Due by” field.
  • Customer acceptance date: Also referred to as subscription start date, this is the date from which the customer accepted the delivery of the subscription or associated change order.

D

  • Debit: An accounting entry that either 1) increases an asset or expense account, or 2) decreases a liability or equity account.
  • Downgrade: An amendment or change order to an existing contract in which a customer selects a lower service level.
  • Due upon receipt: A payment term that specifies that payment is due immediately upon receipt of the invoice.
  • Dunning: The process of communicating with customers to ensure the collection of accounts receivable. For example, a payment reminder for past due balances 30 days late, 60 days late, 90 days late, etc.

E

  • Early termination: The cancelation of a subscription before the end of its term.
  • Effective date: The date from which contract terms, pricing or service start date takes effect
  • Electronic payment: A non-paper based payment, such as ACH, wire transfer, or credit card.
  • Event-based billing: Event-based billing sets invoicing close cycles on an event (not a set time period). Examples of business scenarios where events define the release of an invoice are:
    1. In a commercial retail business, when inventory leaves the warehouse
    2. In a ports and logistics business, when a ship leaves a dock after servicing
    3. In an enterprise software business, directly after service installation
    4. In teleconferencing business, as soon as a conference call has ended

F

  • Flat-rate pricing: Also referred to as flat fee and linear rate, this refers to a pricing structure that charges a single fixed fee for a service, regardless of usage.
  • Floor limit: The maximum amount of money that can be charged without requiring an authorization.

G

  • General ledger: A general ledger is a full record of all your company’s financial transactions throughout its life and contains all of the information needed to prepare financial statements. Watch this video.
  • Gross: The total amount before deductions.
  • Gross income: Also called gross profit, this is pre-tax net sales minus cost of sales.
  • Gross margin: Gross income divided by net sales, expressed as a percentage; it reveals how much a company earns relative to the costs incurred for producing its products/services.

I

  • Income statement: Also called a profit and loss account, this is a financial statement that is used to determine profits and losses for a given accounting period.
  • Interval subscription: A recurring charge that allows for the definition of a custom interval other than the pre-defined intervals such as weekly, monthly, quarterly, annually, or daily.
  • Invoice: An itemized statement to a buyer that specifies the goods or services purchased, their price, and the terms of sale.
  • Invoice billing: A billing process in which invoices are created each time a customer orders; are all separate bills to be paid. E.g., if a customer makes 37 unique orders in a month, 37 invoices are sent out separately.

M

N

  • Net: The amount remaining after adjustments have been made for debts, deductions, and expenses.
  • Net income: Also called earnings or the bottom line, this is what remains after subtracting all costs (depreciation, interest, taxes, etc.) from a company’s revenues.

O

P

  • P.O. Number: The purchase order number provided by your customer for services and/or products purchased. A P.O. number uniquely identifies a purchase order and is used to match an invoice to a purchase order.
  • Passage of Time revenue recognition: Revenue recognition rules that defines recognition of a single order over a predefined period of time.
  • Payment: The dollar amount that a customer allocates to pay for an invoice.
  • Payment card industry data security standard (PCI DSS): A standard that specifies requirements for organizations and sellers to safely and securely accept, store, process, and transmit cardholder data during a credit card transaction to prevent fraud and data breaches.
  • Per invoice charge: A charge levied against an invoice itself with either a flat rate or percentage calculation.
  • Post-paid subscription: A charging model in which the customer pays for a subscription AFTER the goods or services have been consumed or delivered. This means the invoice will go out after services are rendered.
  • Pre-paid subscription: A charging model in which the customer pays for a subscription BEFORE the goods or services have been consumed or delivered.
  • Price book: A price list containing calculated product or service prices for a given customer or customer segment.
  • Product catalog: A complete listing of the products and services a company offers for sale.
  • Promotion: A discount assigned to the purchase of a good or service with a time limit and/or promotion code.
  • Proration: To divide a dollar amount proportionally, typically based on a unit of time. For example, if a service costs $10,000 per month and a customer uses the service for half of the month, the charge would be $5,000. Proration enables off cycle additions and removals of service without disrupting the standard billing procedures of an organization.

R

  • Rate schedule: A collection of rate classes.
  • Rating formula: Formula-based rates are used to implement specific rating logic that does not fit the traditional metered or subscription methods available in standard billing systems, or where standard rating modes simply won’t work, and logic must be defined. For example, discounted rates based on phone usage on nights and weekends or specific labor rates for overtime and holidays.
  • Reconciliation: An accounting process that uses two sets of records to ensure figures are accurate and in agreement. It confirms whether the money leaving an account matches the amount that’s been spent, ensuring the two are balanced.
  • Recurring charges: Charges for a service or services on a prearranged schedule.
  • Refactoring fee: A charge levied to cover the cost of collecting debts which have aged beyond the agreed upon credit period; this charge is usually expressed as a percentage of the amount outstanding.
  • Revenue event: A change to a revenue schedule, such as canceling an invoice or recognizing an undistributed amount.
  • Revenue recognition: An accounting principle under generally accepted accounting principles (GAAP) that denotes the specific conditions under which revenue is recognized or accounted.
  • Revenue schedule: The distribution of revenue amounts over a specified number of accounting periods, which outlines how revenue will be recognized over time.

S

  • Scheduled revenue recognition: The recognition of revenue based on a set interval of time (passage of time). This could be daily, weekly, monthly, or a custom time interval and can be different for each individual contract, customer, or group of customers.
  • Subscription: A business model in which a customer pays a subscription price to have access to a product or service for a specified period of time.

T

  • Tiered pricing: A charge model where changes are based on the incremental units purchased. E.g., units 1-25 are $100 each, units 26-50 are $90 each, units 51-200 are $85 each, and all additional units are $80 each. Though not frequently done, tiered pricing may also incorporate included or free units too.
  • Total contract value (TCV): The contractual value of a fully executed contract.

U

  • Undistributed revenue: Recognized revenue whose accounting period cannot be determined, and which is held in an open-ended accounting period until distribution.
  • Upgrade: An amendment or change order to an existing contract in which a customer selects a higher service level.
  • Usage charge: A charge associated with the consumption of a given product or service (e.g., time on a site, gigabytes of data, miles driven, etc.).

V

W

  • Workflow: An orchestrated and repeatable pattern of business activity.
  • Write-off: A reduction in the recorded amount of an asset, which occurs upon the realization that an asset no longer can be converted into cash, provides no further use to a business, and/or has no market value.

Z

  • Zero floor limit: Specifies that all transactions must receive authorization.