Glossary
Commercial credit, defined.
130 working definitions across trade credit, receivables, collections, financial analysis, bureau data, and construction credit — with formulas and worked examples where they help.
Trade Credit33 terms
Blanket Exemption Certificate
An exemption certificate that covers all qualifying purchases a customer makes from a seller on a continuing basis, rather than a single named order.
Cash in Advance (CIA)
A payment arrangement requiring the customer to pay before goods are shipped or services performed, eliminating the seller's credit risk on the transaction.
Cash on Delivery (COD)
A payment arrangement in which the customer pays at the moment goods are delivered, before the seller relinquishes them.
Certificate Expiration
The date an exemption certificate stops supporting untaxed sales, after which the seller is exposed for transactions it continues to treat as exempt.
Concentration Risk
The portfolio risk created when a large share of receivables is owed by a single customer, corporate family, industry, or region.
Credit Alert
A notification that a monitored customer has crossed a defined risk threshold, distinct from a passive report because it names an owner and expects a response.
Credit Application
The document a business customer completes to request open terms, capturing legal identity, ownership, bank and trade references, and the contractual terms of sale.
Credit Decisioning
The process and rules by which a seller evaluates a credit request and produces an approve, decline, or refer outcome with a limit and terms.
Credit Exposure
The total amount a seller stands to lose on a customer at a point in time, including open receivables and, in stricter definitions, unshipped orders and unbilled work.
Credit File
The consolidated record a seller maintains on a customer's creditworthiness: application, reports, financials, decisions, guarantees, and correspondence.
Credit Hold
A block placed on a customer account that stops new orders or shipments until a credit issue, usually past-due balances or an exceeded limit, is resolved.
Credit Limit
The maximum outstanding balance a seller will allow a customer to carry on open account at any one time.
Credit Policy
The documented rules governing how a company extends trade credit: who gets terms, how limits are set, who approves what, and when accounts escalate to collections.
Credit Review
A periodic or event-triggered reassessment of an existing customer's creditworthiness, limit, and terms based on updated payment behavior and financial data.
Credit Utilization
The share of a customer's credit limit currently consumed by open exposure, used to spot both over-extension and stale limits.
Credit Watchlist
A standing, named group of accounts under heightened monitoring, defined by explicit entry and exit criteria rather than assembled by hand each period.
Direct Pay Permit
An authorization allowing a buyer to purchase without tax and remit any tax due directly to the state, shifting determination from the seller to the buyer.
Early Payment Discount
A price reduction offered to customers who pay an invoice before the standard due date, most commonly expressed as terms like 2/10 net 30.
Exemption Reason Code
The stated basis on which a buyer claims exemption — resale, manufacturing, agriculture, government, nonprofit and similar — recorded on the certificate itself.
Guarantor
A person or entity that agrees to pay a customer's debt if the customer defaults, such as an owner signing a personal guarantee or a parent company guaranteeing a subsidiary.
Letter of Credit
A bank's binding commitment to pay the seller on presentation of specified documents, substituting bank credit risk for the buyer's credit risk.
MTC Uniform Sales & Use Tax Exemption Certificate
A multi-jurisdiction exemption certificate published by the Multistate Tax Commission, accepted by a group of states as an alternative to each state's own form.
Net 30
A payment term requiring the full invoice amount to be paid within 30 days of the invoice date.
Open Account
A trading arrangement in which the seller ships goods and invoices the buyer, trusting payment by the due date without security or payment instruments.
Payment Terms
The contractual conditions specifying when and how a customer must pay an invoice, including the due date, any early-payment discount, and late-payment consequences.
Personal Guarantee
A signed promise by a business owner or principal to pay the company's debt personally if the business fails to pay.
Resale Certificate
An exemption certificate claiming that goods are bought to be resold rather than consumed, so tax is deferred to the eventual retail sale rather than charged at the wholesale one.
Risk Band
An ordered risk tier — low, medium, high, severe — that a customer is assigned to, so credit policy can apply different limits, terms, and review cadence per tier instead of one global rule.
Sales Tax Exemption Certificate
A document a buyer gives a seller to claim that a purchase is not subject to sales tax, transferring the burden of proof for the untaxed sale onto the seller who accepts it.
SSUTA Exemption Certificate
A standardized exemption certificate accepted across the member states of the Streamlined Sales and Use Tax Agreement, letting one form carry a buyer's exemption claim into several states at once.
Trade Credit
Short-term financing a supplier extends to a business customer by delivering goods or services now and collecting payment later under agreed terms.
Trade Credit Insurance
An insurance policy that reimburses a seller for losses when covered customers fail to pay trade receivables due to insolvency or protracted default.
Trade References
Other suppliers a credit applicant lists so the seller can verify the applicant's actual payment history on comparable accounts.
Financial Analysis23 terms
Altman Z-Score
A composite bankruptcy-prediction score that combines five weighted financial ratios into a single measure of corporate distress risk.
Balance Sheet
A snapshot of a company's assets, liabilities, and equity at a single point in time, showing what it owns, what it owes, and what is left for owners.
Cash Flow Statement
The financial statement that reconciles net income to actual cash movement, split into operating, investing, and financing activities.
Credit Scorecard
A structured scoring model that weights multiple risk factors — financials, payment history, bureau data, firmographics — into a single credit score and recommended action.
Current Ratio
A liquidity ratio that measures a company's ability to cover its short-term obligations with its short-term assets.
Days Inventory Outstanding (DIO)
The average number of days a company holds inventory before selling it, measuring how quickly stock converts to revenue.
Debt-to-Equity Ratio
A leverage ratio comparing a company's total liabilities to shareholders' equity, showing how much of the business is financed by creditors versus owners.
Early Warning Signal
A measurable indicator that historically precedes credit deterioration, used to identify a weakening customer before a payment is actually missed.
EBITDA
Earnings before interest, taxes, depreciation, and amortization — a proxy for operating cash generation used to compare profitability across companies.
Financial Statement Spreading
The practice of restating customer financial statements into a standardized template so ratios and trends can be computed and compared consistently.
Free Cash Flow
The cash a company generates from operations after capital expenditures — the money genuinely available to repay debt, pay owners, and absorb shocks.
Gross Margin
The percentage of revenue remaining after direct costs of goods or services, measuring core pricing power and production efficiency.
Income Statement
The financial statement showing a company's revenues, costs, and profit over a period, from top-line sales down to net income.
Interest Coverage Ratio
A ratio measuring how many times a company's operating earnings can cover its interest expense, indicating headroom before debt service becomes distress.
Leverage Ratio
Any of a family of ratios measuring how much debt a company uses relative to its equity, assets, or earnings.
Liquidity
A company's ability to meet its short-term obligations as they come due, using cash on hand and assets that convert quickly to cash.
Operating Margin
Operating income as a percentage of revenue, showing how much profit the business generates from operations after all operating expenses.
Quick Ratio (Acid-Test Ratio)
A stricter liquidity ratio that excludes inventory, measuring whether a company can pay near-term obligations from cash and receivables alone.
Retained Earnings
The cumulative profits a company has kept in the business rather than distributed to owners since inception.
Solvency
A company's ability to meet its long-term obligations — whether its assets exceed its liabilities and its earnings can sustain its debt over time.
Tangible Net Worth
Shareholders' equity minus intangible assets, measuring the hard-asset cushion actually available to creditors.
Trend Analysis
Comparing a company's financial metrics across multiple periods to identify direction and momentum rather than judging a single snapshot.
Working Capital
The dollar difference between a company's current assets and current liabilities, representing the funds available to run day-to-day operations.
Accounts Receivable20 terms
Accounts Receivable (AR)
Money owed to a company by customers for goods or services delivered on credit but not yet paid for.
Allowance for Doubtful Accounts
A balance-sheet reserve estimating the portion of accounts receivable that will not be collected, netted against gross AR.
AR Aging Report
A report that groups open receivables by how long invoices have been outstanding, typically in 30-day buckets, to show where collection risk sits.
AR Turnover Ratio
How many times per year a company collects its average accounts receivable balance, a velocity measure of receivables efficiency.
Bad Debt
Receivables that a company determines are uncollectible and must be recognized as an expense rather than an asset.
Best Possible DSO (BPDSO)
The theoretical minimum DSO a company could achieve if every customer paid exactly on the due date, calculated from current receivables only.
Cash Application
The process of matching incoming customer payments to the specific open invoices they settle, so the AR ledger stays accurate.
Cash Conversion Cycle (CCC)
The number of days between paying suppliers for inputs and collecting cash from customers, combining inventory, receivables, and payables periods.
Chargeback
In B2B trade, a penalty or clawback a customer charges its supplier, or the seller's rebilling of an invalid deduction back to the customer.
Credit Memo
A document a seller issues to reduce the amount a customer owes, correcting an invoice for returns, pricing errors, shortages, or allowances.
Days Payable Outstanding (DPO)
The average number of days a company takes to pay its own suppliers, calculated from accounts payable and cost of goods sold.
Days Sales Outstanding (DSO)
The average number of days it takes a company to collect payment after a credit sale, calculated from receivables and credit sales.
Deduction
An amount a customer unilaterally subtracts from payment, citing reasons like shortages, damages, promotional allowances, or compliance penalties.
Factoring
Selling accounts receivable to a third party at a discount to receive cash immediately instead of waiting for customers to pay.
Invoice Dispute
A customer's formal disagreement with an invoice, over price, quantity, quality, or terms, that suspends payment until the issue is resolved.
Invoice-to-Cash (I2C)
The end-to-end process from issuing an invoice through collections, dispute resolution, and cash application, ending when payment is matched and cleared.
Remittance Advice
The detail a customer sends with a payment listing which invoices, credits, and deductions the payment covers.
Short Payment
A customer payment for less than the invoiced amount, leaving a residual balance that must be investigated, collected, or credited.
Statement of Account
A periodic summary sent to a customer listing all open invoices, credits, payments, and the total balance owed as of a date.
Unapplied Cash
Customer payments a company has received and deposited but not yet matched to specific open invoices.
Collections18 terms
Broken Promise
A promise to pay that the customer failed to keep by the committed date, a key escalation trigger and risk signal in collections.
Collection Agency
A third-party firm that pursues delinquent debts on behalf of the creditor, usually for a contingency fee based on amounts recovered.
Collection Effectiveness Index (CEI)
A percentage measure of how much of the receivables that were available to collect in a period actually got collected.
Collections
The systematic process of pursuing payment on past-due receivables, from reminders and calls through escalation to agencies or legal action.
Demand Letter
A formal written demand for payment of a debt, stating the amount owed, a deadline, and the consequences of non-payment.
Dunning
The structured sequence of payment reminders and demand notices sent to customers as invoices age past due.
Escalation Path
The predefined sequence of increasingly serious collection actions an account follows as delinquency deepens, with triggers, owners, and timelines.
Final Notice
The last communication a creditor sends before escalating a delinquent account to a collection agency or legal action.
First-Party Collections
Collection activity conducted in the creditor's own name, whether by internal staff or an outsourced team acting as the creditor.
Payment Plan
A negotiated agreement letting a delinquent customer repay a past-due balance in scheduled installments rather than a single payment.
Promise to Pay
A customer's specific commitment to pay a stated amount by a stated date, recorded and tracked by the collections team.
Recovery Rate
The percentage of a defaulted or placed debt ultimately collected, used to evaluate agencies, guide settlements, and reserve for losses.
Right-Party Contact
Reaching the person who actually has authority and ability to resolve a debt, the gating step for all collection progress.
Settlement
An agreement to accept less than the full balance owed as complete satisfaction of a debt, usually to obtain certain payment from a distressed debtor.
Skip Tracing
The investigative process of locating a debtor who has moved, closed, or gone silent, and finding assets that could satisfy the debt.
Statute of Limitations on Debt
The legal deadline, varying by state and contract type, after which a creditor can no longer sue to collect a debt.
Third-Party Collections
Collection activity by an outside agency or attorney acting in their own name after the creditor's internal efforts have been exhausted.
Write-Off
The formal removal of an uncollectible receivable from the AR ledger, charging it against the allowance for doubtful accounts.
Credit Bureaus & Data16 terms
Bankruptcy Filing (Business)
A formal petition under the US Bankruptcy Code that halts collection activity and determines how a distressed business's obligations are restructured or liquidated.
Business Credit Report
A bureau-compiled profile of a company's payment history, public records, corporate details, and risk scores used to underwrite trade credit.
Credit Bureau (Commercial)
A company that collects business payment and public-record data and sells credit reports and scores used to assess commercial credit risk.
Credit Inquiry (Commercial)
A record that someone pulled a business's credit report, whose pattern and velocity can signal credit-seeking behavior or supplier churn.
D-U-N-S Number
A unique nine-digit identifier assigned by Dun & Bradstreet to each business entity and location, used to match and track commercial credit data.
Days Beyond Terms (DBT)
The average number of days a business pays its invoices past the agreed due date, weighted across reported trade experiences.
Delinquency Score
A bureau score predicting the likelihood a business will pay its obligations severely late — typically 90+ days past due — within the coming year.
Equifax Business (Commercial Credit)
Equifax's commercial credit reporting arm, providing business credit reports, payment indices, and risk scores on US businesses.
Experian Intelliscore Plus
Experian's commercial credit score predicting the likelihood a business will become seriously delinquent or fail within the next 12 months.
Failure Score
A bureau score predicting the probability that a business will fail, file bankruptcy, or cease operations within the next 12 months.
Judgment (Civil)
A court ruling that a business owes a specific debt, giving the winning creditor legal enforcement tools and appearing as a derogatory public record.
PAYDEX Score
Dun & Bradstreet's 1-100 payment-performance score, indicating how promptly a business pays its suppliers relative to agreed terms.
Public Records (Commercial Credit)
Court and government filings — bankruptcies, judgments, tax liens, UCC filings, suits — that appear on business credit reports as derogatory or informational items.
Tax Lien
A government claim filed against a business's assets for unpaid taxes, widely regarded as one of the strongest single predictors of business failure.
Trade Line (Trade Experience)
A single supplier's reported payment experience with a business, forming the raw material of commercial credit reports and payment scores.
UCC Filing (UCC-1 Financing Statement)
A public notice filed under the Uniform Commercial Code declaring a lender's or supplier's security interest in a debtor's assets.
Construction Credit20 terms
Bond Claim
A formal demand for payment made against a construction payment bond when the bonded contractor fails to pay a subcontractor or supplier.
Conditional Lien Waiver
A lien waiver that takes effect only if and when the associated payment actually clears, protecting the claimant against bounced or cancelled payments.
General Contractor (GC)
The party contracting directly with a project owner to deliver the whole project, managing and paying the subcontractors and suppliers below it.
Job Account
A customer account or sub-account tied to a specific construction project, so that credit, billing, and lien rights are tracked per job rather than only per customer.
Joint Check Agreement
An arrangement in which a general contractor pays by check made out jointly to a subcontractor and its supplier, ensuring the supplier is paid from project funds.
Lien Waiver
A document in which a contractor or supplier gives up mechanics lien rights, usually exchanged for a progress or final payment.
Little Miller Acts
State statutes modeled on the federal Miller Act, requiring payment bonds on state and local public construction projects.
Material Supplier
A business that furnishes materials to a construction project without performing on-site labor, holding lien or bond rights in most states despite having no contract with the owner.
Mechanics Lien
A statutory security interest in real property available to contractors, subcontractors, and suppliers who improve it but are not paid.
Miller Act
The federal statute requiring payment and performance bonds on federal construction projects, giving unpaid subcontractors and suppliers a bond remedy in place of lien rights.
Notice of Intent to Lien
A formal warning sent before filing a mechanics lien, stating that the claimant will lien the property unless payment is made — required in some states, tactically useful everywhere.
Notice to Owner (NTO)
Florida's name for the preliminary notice — a document served on the property owner early in furnishing to preserve a non-privity claimant's lien rights.
Pay-If-Paid Clause
A subcontract clause making the owner's payment to the general contractor an absolute precondition of the subcontractor being paid at all, shifting owner-insolvency risk downward.
Pay-When-Paid Clause
A subcontract clause making the timing of payment to the subcontractor contingent on the general contractor first receiving payment from the owner.
Payment Bond
A surety bond guaranteeing that subcontractors and suppliers on a construction project will be paid, standing in place of lien rights on public work.
Preliminary Notice
An early notice sent to the property owner and general contractor identifying a supplier or subcontractor on the project, required in many states to preserve lien rights.
Retainage
A contractually withheld percentage of each construction progress payment, held back until project completion to ensure performance.
Stop Notice (Stop Payment Notice)
A statutory notice that intercepts unpaid construction funds, requiring the owner or lender to withhold money from the contractor for the benefit of the unpaid claimant.
Subcontractor
A trade contractor hired by the general contractor to perform a specific scope of work, occupying the middle of the construction payment chain.
Unconditional Lien Waiver
A lien waiver effective immediately upon signing, releasing lien rights whether or not the associated payment is ever actually received.
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