Financial Terms Glossary: 95 Commonly Used Phrases Explained

Navigating the world of finance can feel overwhelming because it contains many complicated words and terms. With the advance of technology, these are becoming even more complicated. That is why we’ve created a simple financial terms glossary that explains 95 important finance and payment-related terms in an easy-to-understand way. 

Why Is Financial Literacy Important?

Financial literacy is really important for how well someone does in life and how successful they are with their finances. It’s important for a few key reasons.

• It helps individuals make smart choices about their money.
• Makes it easier for people to plan their budget and handle any money they owe.
• Let them save money for the future and invest it wisely.
• Protects from scams and bad money practices.
• Helps people build up their money over time.

If someone understands money well, they can:

• Stay away from expensive mistakes.
• Figure out tricky money products and services.
• Feel more sure about their money choices.
• Plan for big life events like school, buying a house, or retirement.
• Help the economy stay strong overall.

Electronic Transfer Inc.’s Financial Terms Glossary for Everyone

1. Account Receivable (A/R): Money owed to a company by customers for goods or services provided on credit.
2. ACH Debit: Authorization for a third party to withdraw funds from a bank account.
3. ACH Payment: An electronic transfer of funds between bank accounts using the Automated Clearing House network.
4. Advance Payment Guarantee: A financial instrument ensuring a seller receives payment in advance for goods or services delivered.
5. Amortization: The process of spreading out loan payments over time, including interest and principal.
6. Amortization Schedule: A table detailing the repayment of a loan, showing the principal and interest portions over time.
7. Automatic Payment: Pre-authorized payments set up to automatically deduct funds from a bank account on a recurring basis.
8. Balance Due: Remaining amount owed after deductions, payments, or adjustments are made.
9. Bad Debt: Money owed that is unlikely to be recovered and may be written off as a loss.
10. Billing Cycle: The period between one billing statement and the next, typically 30 days.
11. Bounced Check: A check that is returned by the bank due to insufficient funds in the payer’s account.
12. Cash Advance: A short-term loan from a credit card or lender, typically with high interest rates.
13. Cash on Delivery (COD): Payment method where the buyer pays for goods upon delivery.
14. Cash Flow: The movement of money in and out of a business, indicating its liquidity and financial health.
15. Chargeback: When a buyer disputes a transaction, requesting a refund from the bank or credit card issuer.
16. Collateral: Assets pledged by a borrower to secure a loan or credit line.
17. Collections: Process of pursuing overdue payments from customers.
18. Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
19. Credit Limit: Maximum amount of credit extended to a buyer by a lender or financial institution.
20. Credit Memo: Document indicating that the buyer is owed a refund or credit for various reasons.
21. Credit Report: A detailed report of an individual’s credit history, including credit accounts, payment history, and outstanding debts.
22. Credit Terms: Conditions under which credit is extended to a buyer, including repayment schedule and interest rates.
23. Debt Consolidation: Combining multiple debts into a single loan with a lower interest rate or monthly payment.
24. Debt-to-Income Ratio: The percentage of a borrower’s monthly gross income that goes toward paying debts.
25. Default: Failure to fulfill a financial obligation, such as making loan payments.
26. Direct Debit: Authorization for a company to withdraw funds directly from a bank account for recurring payments.
27. Dispute Resolution: Process of resolving disagreements or disputes between parties regarding payments or transactions.
28. Down Payment: Initial payment made by the buyer to secure a purchase, typically a percentage of the total amount.
29. Due Upon Receipt: Payment expected immediately upon the buyer receiving the invoice.
30. Early Payment Discount: Discount offered to the buyer for settling the invoice before the due date.
31. Escrow: Financial arrangement where a third party holds and regulates payment of funds until the transaction is complete.
32. Escrow Account: An account where funds are held by a third party until certain conditions are met.
33. Factoring: Selling accounts receivable to a third party at a discount to receive immediate cash flow.
34. FICO Score: A credit score developed by FICO (Fair Isaac Corporation) used by lenders to evaluate the creditworthiness of borrowers.
35. Foreclosure: Legal process by which a lender repossesses a property due to the borrower’s failure to make mortgage payments.
36. Garnishment: Legal process by which a portion of a debtor’s wages is withheld to pay off a debt.
37. Grace Period: A period of time after a payment due date during which a payment can be made without penalty.
38. Installment Loan: A loan repaid in regular installments over a set period, including principal and interest.
39. Interest Rate: The percentage of the principal amount charged by a lender for the use of its money.
40. Invoice Aging: Tracking the number of days an invoice remains outstanding.
41. Invoice Date: Date on which an invoice is issued to the buyer.
42. Late Payment Fee: Penalty charged to the buyer for failing to settle the invoice by the due date.
43. Letter of Credit: Document issued by a bank guaranteeing payment to the seller upon meeting specified conditions.
44. Lien: Legal right or interest that a creditor has in a debtor’s property as security for a debt.
45. Maturity Date: The date on which a financial instrument, such as a loan or bond, becomes due for repayment.
46. Merchant Account: Bank account allowing businesses to accept payments via credit or debit cards.
47. Merchant Services: Financial services enabling businesses to accept and process payments from customers.
48. Minimum Payment: The smallest amount a borrower must pay on a debt to avoid default.
49. Net 30: Payment terms requiring settlement of the invoice within 30 days of the invoice date.
50. Net 60: Extending the payment period to 60 days from the invoice date.
51. Non-Sufficient Funds (NSF): When a bank account does not have enough money to cover a payment or check.
52. Open Account: Credit arrangement allowing the buyer to purchase goods or services on account and pay at a later date.
53. Origination Fee: A fee charged by a lender for processing a new loan application.
54. Outstanding Balance: The amount of money still owed on a loan or credit account.
55. Overdue Invoice: Invoice that has not been paid by the due date.
56. Partial Payment: Paying only a portion of the total amount due.
57. Payee: The person or entity to whom a payment is made.
58. Payment Acknowledgement: Formal acknowledgment confirming that the buyer’s payment has been received.
59. Payment Confirmation: Notification sent to the buyer acknowledging that their payment has been received and processed.
60. Payment Default: Failure to meet agreed-upon payment terms, leading to penalties or legal action.
61. Payment Gateway: Technology facilitating online transactions by connecting the merchant’s website with financial networks.
62. Payment Gateway Integration: Connecting a payment gateway to an e-commerce platform or website for online transactions.
63. Payment Hold: Temporary withholding of funds from a transaction for various reasons.
64. Payment in Advance: Requiring the buyer to pay for goods or services before receiving them.
65. Payment Plan: Allowing the buyer to pay for a purchase in installments over a set period.
66. Payment Processor: Third-party company handling transactions between buyers and sellers.
67. Payment Reversal: Undoing a transaction, typically initiated by the bank or payment processor.
68. Payment Terms and Conditions: Rules and expectations related to payment, including accepted methods and late fees.
69. Payment Terms Extension: Granting the buyer additional time to settle an invoice beyond the original due date.
70. Payment Terms Modification: Changing the terms of a payment agreement, such as adjusting due dates or discount terms.
71. Payment Terms Negotiation: Discussing and agreeing upon payment terms between the buyer and seller.
72. Peer-to-Peer Payment: Transfer of funds between individuals using a mobile app or online platform.
73. Prepayment: Paying for goods or services before delivery.
74. Principal: The original amount of money borrowed or invested, excluding interest.
75. Pro Forma Invoice: Preliminary bill of sale sent to the buyer before the actual delivery of goods or services.
76. Recurring Payment: Payment made on a regular schedule, such as monthly or annually.
77. Remittance: Sending money as payment or the accompanying document detailing the payment.
78. Repayment Plan: Agreement between a lender and borrower outlining how a loan will be repaid.
79. Revolving Credit: Line of credit allowing borrowers to repeatedly borrow up to a certain limit.
80. Secured Loan: Loan backed by collateral, reducing the lender’s risk.
81. Secured Payment: Using encryption and authentication to protect financial transactions from fraud.
82. Settlement: Resolving a debt for less than the full amount owed, typically negotiated with creditors.
83. Subprime Loan: Loan offered to borrowers with poor credit history or lower credit scores.
84. Tax Lien: Legal claim by a government entity on a taxpayer’s property for unpaid taxes.
85. Terms of Sale: Conditions under which a transaction takes place, including payment terms and delivery responsibilities.
86. Trade Credit: Form of credit extended by a supplier to a buyer, allowing purchases on account.
87. Underwriting: Evaluation of a borrower’s creditworthiness and the risk associated with lending money.
88. Unsecured Debt: Debt not backed by collateral, relying on the borrower’s creditworthiness.
89. Usury: Charging an excessively high interest rate on a loan, often considered illegal.
90. Variable Rate: Interest rate that can fluctuate based on market conditions.
91. Wage Garnishment: Legal process of deducting money from an employee’s wages to pay off a debt.
92. Wire Transfer: Electronic transfer of funds between bank accounts for international transactions.
93. Withholding: Deducting money, such as taxes, from an employee’s paycheck before they receive it.
94. Zero Interest: Financing option where no interest is charged on the borrowed amount.
95. Zero Liability Protection: Protection provided by credit card companies against unauthorized transactions.

Wrap Up

No matter your background – whether you’re a student, a working professional, or simply interested to learn more – this glossary of financial terms equips you to make informed decisions about money.

Remember, financial literacy is an ongoing journey. Stay curious, keep learning, and don’t hesitate to seek professional advice when needed.