Business Glossary
Plain-English definitions of 30 invoicing, tax, and business terms. Built for freelancers and small business owners.
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Accounts Payable
Accounts payable (AP) is the total amount a business owes to its suppliers and vendors for goods or services received but not yet paid for. It represents the business's outstanding bills and obligations.
Accounts Receivable
Accounts receivable (AR) is the total amount of money owed to a business by its clients for goods or services that have been delivered but not yet paid for. It represents outstanding invoices awaiting payment.
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Contract
A contract is a legally binding agreement between two or more parties that sets out the terms, obligations, and rights governing a business relationship or project. Freelancers use contracts to protect both themselves and their clients.
Credit Note
A credit note is a document issued by a seller to reduce the amount a buyer owes. It effectively reverses all or part of a previously issued invoice, typically due to an error, returned goods, or an agreed discount.
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I
Invoice
An invoice is a formal document sent by a seller to a buyer requesting payment for goods or services provided. It lists the items supplied, amounts owed, payment terms, and due date.
Invoice Number
An invoice number is a unique identifier assigned to each invoice for tracking and reference purposes. In the UK, invoice numbers must follow a sequential pattern with no gaps or duplicates.
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Late Payment Interest
Late payment interest is a charge applied to overdue invoices. Under UK law, businesses can charge interest at 8% above the Bank of England base rate on late commercial payments, plus a fixed compensation fee.
Limited Company
A limited company is a business structure registered with Companies House that has its own legal identity, separate from its owners. The owners' liability is limited to the amount they have invested in the company.
Line Item
A line item is a single entry on an invoice, estimate, or proposal that describes a specific product, service, or charge along with its quantity, unit price, and total.
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N
National Insurance
National Insurance (NI) is a UK tax on earnings and profits that funds state benefits including the State Pension, NHS, and unemployment support. Self-employed individuals pay Class 2 and Class 4 National Insurance contributions.
Net 30
Net 30 is a payment term meaning the full invoice amount is due within 30 calendar days of the invoice date. It is one of the most common payment terms used in business-to-business transactions.
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Payment Terms
Payment terms are the conditions under which a seller expects to be paid by a buyer, including the payment deadline, accepted methods, late payment penalties, and any deposit requirements.
Personal Allowance
The personal allowance is the amount of income you can earn each tax year before paying income tax in the UK. For 2025/26, the personal allowance is £12,570.
Proforma Invoice
A proforma invoice is a preliminary bill of sale sent before goods are delivered or services are completed. It outlines the expected costs and terms but is not a demand for payment or a true tax invoice.
Purchase Order
A purchase order (PO) is a formal document issued by a buyer to a seller authorising the purchase of goods or services at agreed prices. It becomes a binding contract once accepted by the seller.
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Receipt
A receipt is a written acknowledgement that payment has been received for goods or services. Unlike an invoice, which requests payment, a receipt confirms that a transaction has been completed.
Recurring Invoice
A recurring invoice is an invoice that is automatically generated and sent at regular intervals — such as weekly, monthly, or quarterly — for ongoing services or subscriptions.
Remittance Advice
Remittance advice is a document sent by a buyer to a seller confirming that a payment has been made, specifying which invoices the payment covers and the amounts paid.
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Scope of Work
A scope of work (SOW) is a detailed document that defines the specific tasks, deliverables, timelines, and boundaries of a project. It establishes what will and will not be included, preventing scope creep.
Self-Assessment
Self-assessment is the UK system used by individuals to report their income and pay income tax directly to HMRC. Freelancers, sole traders, and anyone with untaxed income must file a self-assessment tax return each year.
Sole Trader
A sole trader is a self-employed individual who owns and runs their business as a single person. It is the simplest business structure in the UK, with no legal distinction between the person and the business.