Cash flow glossary

If you're new to the realm of cash flow, you might be seeing a lot of terminology for the first time. To help break through the jargon, we've assembled a list of key terms and helpful definitions below, along with some frequently asked questions. If you have any more questions you'd like answered, reach out to us at content@gocardless.com.

Looking for online payments terminology? Take a look at our key online payments terms and FAQs.

Key cash flow terms and definitions

Accounts payable (AP)

Accounts payable is the money that a business owes its suppliers. This owed payment stems from the common behaviour of businesses supplying goods or services before being paid, under the agreement they will be paid shortly after they deliver what they promised. It is effectively the opposite of accounts receivable.

As accounts payable is money that a business owes, paying it weakens a business’ cash flow. That is one of the reasons why it’s common for businesses to pay late - by holding onto that money, they increase their cash flow.

Accounts receivable (AR)

Accounts receivable is the money that a business is owed by its customers. This owed payment stems from the common behaviour of businesses supplying goods or services before being paid, under the agreement they will be paid shortly after they deliver what they promised. It is effectively the opposite of accounts payable.

The term ‘accounts receivable’ is also used to refer to the act of ensuring a customer pays the money they owe, and in this sense is often used interchangeably with ‘credit control’, ‘debtor management’, and ‘debtor tracking’. Typical ways of ensuring a customer pays the money they owe are giving them reminders via email or phone call, both before the money is due and after.

As accounts receivable is money that a business is owed, it weakens a business’ cash flow. That is why businesses undertake credit control - to ensure they get the money they’re owed on time, and avoid the dangers of poor cash flow.

Aged debt, aged debtors, and the aged debtors report

Aged debt is money that is overdue to be paid back (based on the agreed payback period, which is commonly 14 days, 30 days, 60 days, or 90 days).

Aged debtors are the parties responsible for paying.

An aged debtors report is a common accounting report which lists out your aged debtors and their aged debt, typically grouping that aged debt by how overdue it is (e.g. up to 30 days overdue, 31-60 days overdue, 61-90 days overdue, etc.).

Automated card payments

Automated card payments are a method of making recurring payments for a product or service (for example, your Netflix subscription). To facilitate this, the customer will provide their credit or debit card details to the business, who will securely store those details, and authorise them to take recurring payments from that card automatically.

Bad debt (or written-off debt)

Bad debt is money that a business is owed by a customer, but which the customer is unable to pay.

Bank reconciliation

Bank reconciliation is the comparison of a business’ accounting records to its bank statements, to ensure the two match. When differences are detected, it may indicate that the accounting records need to be updated, or potentially even uncover fraud. It is commonly recommended that bank reconciliation be conducted at least monthly, but ideally every day.

Billing software

Billing software is software which helps enable the payment process for businesses, through features like the electronic generation and sending of quotes and invoices. Billing software is also commonly referred to as invoicing software, and the functionality it provides is often contained within accounting software.

Bottom line

The bottom line is the net income for a business. The term comes from the layout of an income statement - the bottom line on these statements is where the net income is calculated.

Business agility

Business agility refers to the ability for a business to make decisions and act on them quickly. Where these actions require money to undertake, poor cash flow can prevent a business from being agile, potentially leaving it less able to take advantage of opportunities and avoid risks.

Cash flow

Cash flow is a measure of the amount of funds coming into a business in a given time period (typically a month). Cash flow may be either positive or negative, depending on whether the business is bringing in more or less money than it spends in that period. While positive cash flow is a good sign, having a very high cash flow could indicate a business isn’t investing enough in its own growth.

Cash flow forecast

A cash flow forecast is an estimation of a business’ cash flow in a given future time period (typically 12 months). It informs the business’ financial planning and highlights potential problems before they happen, allowing it to take pre-emptive action. There are several different methods that can be used to forecast cash flow, and businesses can benefit from forecasting various hypothetical scenarios, to be ready for what actually happens. Specialised software exists to help businesses forecast their cash flow with ease and accuracy.

Cash flow position (or cash position)

A cash flow position, also referred to as a cash position, is a measure of how much money a business has at a specific point in time. It may measure more than just cash in the bank, sometimes including other highly liquid assets. Like cash flow, having a positive cash flow position is a good sign, however a very high cash flow position could indicate a business isn’t investing enough in its own growth.

Credit control

Credit control is act of ensuring a customer pays the money they owe. It is often used interchangeably with ‘accounts receivable’, ‘debtor management’, and ‘debtor tracking’. Typical ways of ensuring a customer pays the money they owe are giving them reminders via email or phone call, both before the money is due and after.

Credit limit

A credit limit is the maximum value of goods or services a business will supply a customer before payment must be made. Appropriate credit limits ensure a business controls the risk of not being paid on time (or in the worst case scenario - at all).

Credit terms

Credit terms are the rules, agreed between a business and their customer, which dictate when payment must be made. They are also commonly referred to as ‘payment terms’. Typical credit terms include payment being due 30, 60, or 90 days after goods or services have been delivered (however, as long as the business and customer both agree on them, any period could be used).

Frequently asked questions

What is capital and how can you access it?

Capital is money or other assets (e.g. machinery) that is used to generate wealth. It’s commonly used to describe the money or assets used to start a company, or to invest.

Two primary ways of accessing capital are by assuming debt (e.g. taking out a bank loan) and by offering equity (e.g. taking private investment in exchange for stock).

What’s the difference between an accountant and a bookkeeper?

Although the responsibilities of an accountant and a bookkeeper can overlap, they are distinctly different roles. In short, bookkeeping is an area that falls under the umbrella of accounting, however modern accountants may not perform day-to-day bookkeeping duties at all.

Bookkeepers are primarily responsible for maintaining accurate records of financial transactions within a business. While this traditionally took place in paper books, this transitioned to spreadsheets with the advent of modern computing, and today is increasingly facilitated by specialised cloud accounting software, such as Xero, QuickBooks, or Sage. Bookkeepers may also handle other finance tasks, such as chasing up customers to pay invoices.

Accountants, on the other hand, tend to focus on taking financial data about a business, and interpreting it and reporting on it in different ways for various people inside and outside the business. In this way, they are more like business strategists who pull insights from financial data and use that to offer guidance to the business, to help it achieve its goals.