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An ABA routing number is a nine-digit code that identifies a specific financial institution in the United States. Assigned by the American Bankers Association, it ensures money moves to the right bank during electronic transfers, direct deposits, and check processing.
Accounts payable (AP) is the money your business owes to suppliers, vendors, or creditors for goods and services received but not yet paid for. It appears as a current liability on your balance sheet and represents short-term obligations typically due within 30 to 90 days.
Accounts receivable (AR) is the money owed to your business by customers who have received goods or services but haven't paid yet. It's listed as a current asset on your balance sheet because it represents cash you expect to collect soon.
Accrual accounting records revenue when it's earned and expenses when they're incurred, regardless of when cash actually changes hands. It's the standard method required by GAAP and gives a more accurate picture of a business's financial health than cash-basis accounting.
An ACH return is an electronic payment that couldn't be processed and is sent back to the originator. ACH (Automated Clearing House) returns happen for various reasons — insufficient funds, closed accounts, invalid account numbers, or customer disputes. Each return comes with a specific reason code
An ACH transfer is an electronic bank-to-bank payment processed through the Automated Clearing House network. It's how most direct deposits, bill payments, and business-to-business transactions move money without paper checks or wire fees. ACH transfers typically settle in 1–3 business days, though
Amortization is the process of spreading a cost over time through scheduled payments or accounting entries. For loans, it means paying down both principal and interest in regular installments. For intangible assets (like patents or software), it means expensing the cost gradually over the asset's us
Annual percentage rate (APR) is the total yearly cost of borrowing money, expressed as a percentage. It includes the interest rate plus any fees, points, or other charges rolled into the loan. APR gives you a single number to compare the true cost of different loans — the higher the APR, the more yo
Annual percentage yield (APY) is the real rate of return you earn on a deposit account over one year, including the effect of compound interest. Unlike a simple interest rate, APY accounts for how often interest compounds — daily, monthly, or quarterly. The more frequently interest compounds, the hi
An annual report is a comprehensive document that publicly-traded companies must file with the SEC and provide to shareholders each year. It includes financial statements, management discussion, business operations overview, and other required disclosures. For private businesses, annual reports are
Anti-Money Laundering (AML) refers to laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. Banks and financial institutions must implement AML programs that include customer due diligence, transaction monitoring, suspicious ac
An appraisal is a professional assessment of a property's fair market value conducted by a licensed appraiser. Appraisals are required for most real estate-secured loans to ensure the property provides adequate collateral for the loan amount. The appraiser analyzes the property, comparable sales, ma
Arbitrage is the practice of profiting from price differences for the same asset across different markets. A trader buys low in one market and sells high in another, capturing the spread. In efficient markets, arbitrage opportunities are small and disappear quickly.
An asset is anything your business owns that has economic value. This includes cash, equipment, inventory, property, accounts receivable, and even intangible things like patents or trademarks. Assets are listed on your balance sheet and represent the resources your business uses to generate revenue.
An audit is a formal examination of your business's financial records to verify they're accurate and comply with accounting standards or tax regulations. Audits can be conducted internally (by your own team), externally (by an independent accounting firm), or by the IRS. The goal is to confirm that
The Automated Clearing House (ACH) is an electronic network that processes financial transactions in batches across U.S. banks. It handles direct deposits, bill payments, business-to-business payments, and government transfers — moving trillions of dollars annually.
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Bad debt is money owed to your business that you've determined is uncollectible. When a customer can't or won't pay an invoice, that receivable becomes bad debt — a loss that you can write off as a business expense on your taxes.
A balance sheet is a financial snapshot that shows what your business owns (assets), what it owes (liabilities), and what's left over for the owners (equity) at a specific point in time. It's one of the three core financial statements, and it always balances: Assets = Liabilities + Equity.
A bank draft is a payment instrument issued by a bank on behalf of a payer, guaranteeing the funds are available. Unlike a personal check, where the payer's account might not have sufficient funds, a bank draft is backed by the bank itself — making it as close to cash as a check can get.
A bank guarantee is a promise from a bank that it will cover a loss if a borrower or business fails to meet a contractual obligation. It acts as a safety net for the beneficiary — if the guaranteed party doesn't deliver, the bank pays.
Bank reconciliation is the process of comparing your internal accounting records with your bank statement to make sure they match. When they don't — and they often won't — you identify the differences (outstanding checks, pending deposits, bank fees, errors) and adjust your records accordingly. It's
A bank statement is an official document from your bank that lists every transaction on your account over a specific period — typically one month. It shows deposits, withdrawals, fees, interest earned, and your beginning and ending balances. It's your bank's record of what happened with your money.
Bankruptcy is a legal process that provides relief to individuals or businesses that can't repay their debts. Filing for bankruptcy can result in debt discharge (elimination), restructuring, or an orderly liquidation of assets — depending on the type of bankruptcy filed.
A basis point (bps, pronounced "bips") is one one-hundredth of a percentage point — or 0.01%. Financial professionals use basis points to describe small changes in interest rates, yields, and fees with precision. When someone says rates went up 25 basis points, they mean the rate increased by 0.25%.
A beneficiary is the person or entity designated to receive funds, assets, or benefits from an account, insurance policy, trust, or financial transaction. In banking, a beneficiary is often the recipient of a wire transfer or the person named to inherit an account if the owner dies. It's the answer
A billing cycle is the recurring time period between billing statements — typically 28–31 days for credit cards and monthly for most business services. It defines when charges accumulate, when your statement is generated, and when payment is due. Understanding your billing cycles helps you manage ca
A bond is a loan you make to a government or corporation. When you buy a bond, you're lending money to the issuer in exchange for regular interest payments and the return of your principal at a set maturity date. Bonds are considered lower-risk than stocks and are commonly used by businesses to park
Book value is the net value of an asset or a company as recorded on the balance sheet. For an individual asset, it's the original cost minus accumulated depreciation. For a company, it's total assets minus total liabilities — essentially what shareholders would receive if the business liquidated eve
A bridge loan is short-term financing designed to "bridge" the gap between an immediate need for cash and a longer-term funding source. They typically last 6–18 months and carry higher interest rates than traditional loans because they're meant to be temporary. Businesses use them when they need mon
A budget is a financial plan that estimates your income and expenses over a specific period, usually monthly, quarterly, or annually. It helps businesses allocate resources, control spending, and plan for growth by setting clear financial targets.
Burn rate is the speed at which a company spends its cash reserves, typically measured monthly. It's most commonly used by startups and pre-revenue businesses to understand how long their funding will last before they need to become profitable or raise more capital.
A business line of credit is a flexible financing arrangement where a lender approves you for a maximum borrowing amount, and you can draw from it as needed. You only pay interest on the amount you actually use, and once you repay, that credit becomes available again — similar to how a credit card w
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Capital expenditure (CapEx) is money a business spends to acquire, upgrade, or maintain long-term physical assets like equipment, buildings, or technology. Unlike everyday operating expenses, capital expenditures provide value over multiple years and are recorded as assets on the balance sheet rathe
A capital gain is the profit you earn when you sell an asset for more than you paid for it. This applies to stocks, real estate, business equipment, and other investments. The gain is the difference between your purchase price (cost basis) and the sale price.
Capital is the financial resources a business uses to fund its operations, growth, and investments. It includes cash, equipment, property, and anything else of value that helps generate revenue. In simple terms, capital is the money and assets you put to work to make more money.
A cash flow statement is a financial report that shows how cash moves in and out of your business during a specific period. It tracks actual cash — not accrued revenue or paper profits — across three categories: operating activities, investing activities, and financing activities. It's one of the th
Cash flow is the movement of money in and out of your business over a specific period. Positive cash flow means more money is coming in than going out. Negative cash flow means you're spending more than you're earning. It's the lifeblood of any business — you can be profitable on paper and still go
A certificate of deposit (CD) is a savings product offered by banks where you deposit money for a fixed period — anywhere from a few months to several years — in exchange for a guaranteed interest rate. CDs typically pay higher interest than regular savings accounts, but your money is locked up unti
A chart of accounts (COA) is the complete list of every financial account used to record transactions in your business's general ledger. It organizes your finances into categories — assets, liabilities, equity, revenue, and expenses — and assigns each account a unique number for easy reference. Thin
Check clearing is the process of moving funds from the check writer's bank account to the recipient's bank account. It involves verifying the check is legitimate, confirming sufficient funds exist, and transferring the money between banks. The entire process typically takes 1-3 business days, though
Closing costs are the fees and expenses paid at the finalization of a real estate or loan transaction, beyond the purchase price or loan amount itself. They typically include appraisal fees, title insurance, attorney fees, origination fees, and various administrative charges. For business loans and
Collateral is an asset that a borrower pledges to a lender as security for a loan. If the borrower fails to repay, the lender can seize the collateral to recover their losses. Common forms of collateral include real estate, equipment, inventory, accounts receivable, and cash deposits. Offering colla
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which is only calculated on the original amount), compound interest makes your money grow exponentially over time. It works for you when you're saving an
Cost of goods sold (COGS) is the total direct cost of producing or purchasing the goods a business sells during a specific period. It includes raw materials, direct labor, and manufacturing overhead — but not indirect expenses like marketing, rent, or administrative salaries. COGS is subtracted from
A credit line (also called a line of credit) is a preset borrowing limit that a bank or lender extends to a borrower. You can draw from it as needed, repay, and borrow again — up to the approved limit. Interest is only charged on the amount you've actually borrowed, not the total credit available. I
A credit memo (or credit memorandum) is a document issued by a seller to a buyer that reduces the amount the buyer owes. It's essentially the opposite of an invoice — instead of requesting payment, it acknowledges that money is owed back to the customer. Credit memos are used for returns, billing er
A credit score is a numerical rating (typically 300–850) that represents your creditworthiness — how likely you are to repay borrowed money. For businesses, both your personal credit score and your business credit score affect your ability to secure loans, lines of credit, and favorable terms. Highe
Current assets are resources your business owns that can be converted to cash within one year or one operating cycle. They include cash, accounts receivable, inventory, prepaid expenses, and short-term investments. Current assets appear on the balance sheet and are used to measure your company's sho
Current liabilities are debts and obligations your business must pay within one year or one operating cycle. They include accounts payable (bills to vendors), short-term loans, accrued expenses (wages, taxes owed but not yet paid), and the current portion of long-term debt. They appear on the balanc
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A debit is an accounting entry that increases assets or expenses and decreases liabilities, equity, or revenue. In everyday banking, a debit means money leaving your account — a purchase, withdrawal, or payment. In double-entry bookkeeping, every transaction has both a debit and a credit, keeping th
The debt-to-equity ratio (D/E) measures how much of your business is funded by debt versus owner's equity. It's calculated by dividing total liabilities by total shareholders' equity. A higher ratio means more debt relative to ownership stake; a lower ratio means the business relies more on owner-fu
Default occurs when a borrower fails to meet the legal obligations of a loan — most commonly, missing payments. It can also be triggered by violating other loan terms (covenants), like letting your debt-to-equity ratio exceed an agreed limit. Defaulting on a loan has serious consequences: damaged cr
Depreciation is the accounting process of spreading the cost of a tangible asset over its useful life. Instead of recording the entire cost of equipment, vehicles, or buildings as an expense in the year you buy them, depreciation allocates that cost gradually — matching the expense to the revenue th
Direct deposit is an electronic payment method that transfers funds directly from one bank account to another — most commonly used for payroll. Instead of issuing paper checks, employers deposit wages straight into employees' bank accounts via the Automated Clearing House (ACH) network. It's faster,
A disbursement is any payment of money from a fund or account. In business, it refers to the actual outflow of cash — paying vendors, distributing loan proceeds, issuing refunds, or making payroll. Disbursements are tracked to maintain accurate records of where money goes and ensure all payments are
A dividend is a payment made by a company to its shareholders from its profits or reserves. It's a way of distributing a portion of the company's earnings back to the people who own it. Dividends can be paid in cash, additional stock, or other forms, and are typically issued quarterly, though some c
Double-entry bookkeeping is an accounting method where every financial transaction is recorded in at least two accounts — a debit in one and a credit in another. The total debits always equal the total credits, keeping the books balanced. It's the foundation of modern accounting and the standard for
Due diligence is the process of thoroughly investigating and verifying information before entering into a business transaction — whether it's acquiring a company, signing a major contract, or making a significant investment. It involves examining financials, legal documents, operations, liabilities,
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EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a company's operating performance by focusing on earnings from core business activities, excluding the effects of capital structure, tax environment, and accounting methods for long-term assets. EBITDA giv
An EIN (Employer Identification Number), also called a Federal Tax ID Number, is a unique nine-digit number assigned by the IRS to identify your business for tax purposes. It's formatted as XX-XXXXXXX and is required for hiring employees, opening business bank accounts, filing tax returns, and estab
Electronic Funds Transfer (EFT) is the digital movement of money from one bank account to another without paper checks or cash. EFTs include direct deposit, online bill pay, wire transfers, ACH transfers, and debit card transactions. They're faster, cheaper, and more secure than traditional paper-ba
Equity represents ownership in a business — the portion of the company that belongs to its owners after all debts are paid. On a balance sheet, equity equals total assets minus total liabilities. It includes the original investment plus any profits that have been retained in the business rather than
Escrow is an arrangement where a neutral third party holds money, documents, or assets until specified conditions are met. The escrow agent releases the funds only when both parties fulfill their obligations. It's commonly used in real estate transactions, business sales, and large service contracts
An expense ratio is a measure of how much it costs to operate an investment fund, expressed as a percentage of the fund's average net assets. For businesses, expense ratios are used more broadly to measure efficiency — typically calculated as total operating expenses divided by total revenue. Lower
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Factoring is a financial transaction where a business sells its accounts receivable (unpaid invoices) to a third party — called a factor — at a discount in exchange for immediate cash. Instead of waiting 30, 60, or 90 days for customers to pay, you get most of the money upfront.
FDIC insurance is a federal guarantee that protects your bank deposits up to $250,000 per depositor, per insured bank, per ownership category. If your FDIC-insured bank fails, the Federal Deposit Insurance Corporation ensures you get your money back — typically within a few business days.
A fiduciary is a person or organization that has a legal and ethical obligation to act in the best interest of another party. Fiduciaries must put their client's interests above their own, disclose conflicts of interest, and exercise the care and diligence that a reasonable person would in similar c
A financial statement is a formal record of a business's financial activities and position. The three core financial statements — the income statement, balance sheet, and statement of cash flows — together provide a complete picture of how much money your business makes, what it owns, what it owes,
A fiscal year is a 12-month period that a business uses for accounting and financial reporting purposes. While many businesses use the calendar year (January 1 – December 31), others choose a fiscal year that aligns better with their revenue cycles — like July 1 – June 30 or October 1 – September 30
A fixed asset is a long-term tangible piece of property or equipment that a business owns and uses to generate income. Unlike inventory or supplies, fixed assets aren't consumed or sold within a single year — think buildings, vehicles, machinery, and computers. They're recorded on your balance sheet
Float is the time gap between when a payment is initiated and when the funds are actually deducted or available. In banking, it refers to money that temporarily appears in two places at once — it's left your account on paper but hasn't cleared yet, or a deposit has been credited but the sending bank
Foreclosure is the legal process by which a lender seizes and sells a property when the borrower fails to make mortgage payments. It's essentially the lender exercising their right to recover the outstanding loan balance by taking ownership of the collateral. Foreclosure severely damages the borrowe
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Garnishment is a legal process where a creditor obtains a court order to take money directly from a debtor's wages, bank account, or other assets to satisfy an unpaid debt. It bypasses the debtor entirely — the employer or bank is ordered to withhold funds and send them to the creditor. Garnishment
A general ledger (GL) is the master record of all financial transactions for a business, organized by account. Every dollar that flows in or out — revenue, expenses, assets, liabilities, and equity — gets recorded here. It's the backbone of your accounting system and the source from which financial
Goodwill is an intangible asset that represents the premium paid when acquiring a business above the fair market value of its identifiable net assets. It captures things like brand reputation, customer relationships, employee talent, and proprietary processes — value that's real but can't be assigne
Gross margin is the percentage of revenue that remains after subtracting the direct costs of producing your goods or services (cost of goods sold). It tells you how efficiently your business turns revenue into profit before accounting for overhead like rent, salaries, and marketing. A higher gross m
Gross profit is the money your business keeps after subtracting the direct costs of producing your goods or services from total revenue. It's the dollar amount (not percentage) that shows how much you have left to cover operating expenses, pay yourself, and reinvest in growth. Gross profit is one of
Gross revenue is the total amount of money your business earns from all sales before any deductions — no subtracting returns, discounts, allowances, or costs. It's the "top line" number, the very first figure on your income statement. Gross revenue shows the full scale of your sales activity but doe
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A hard inquiry (also called a hard pull or hard credit check) occurs when a lender or creditor checks your credit report as part of a lending decision. Unlike soft inquiries (which don't affect your score), hard inquiries can temporarily lower your credit score by a few points. They stay on your cre
A hedge is a financial strategy used to reduce or offset the risk of adverse price movements in an asset, currency, or interest rate. Think of it as insurance for your financial position — you take a secondary position that gains value if your primary position loses value. Businesses hedge to protec
A holding company is a business entity that doesn't produce goods or services itself — instead, it owns controlling interests in other companies (called subsidiaries). Its primary purpose is to hold assets, manage investments, and provide liability protection between the entities it controls. Holdin
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An income statement (also called a profit and loss statement or P&L) is a financial report that shows your business's revenues, expenses, and profit or loss over a specific period. It answers the most fundamental question in business: are you making money or losing it? Along with the balance sheet a
Inflation is the rate at which the general price level of goods and services rises over time, reducing the purchasing power of money. When inflation is 3%, something that cost $100 last year costs $103 this year. Moderate inflation is normal in a healthy economy, but high or unpredictable inflation
Insolvency is the financial state where a business or individual cannot pay their debts as they come due, or their total liabilities exceed their total assets. It's not the same as being temporarily short on cash — insolvency means there's a structural inability to meet financial obligations. Insolv
An interest rate is the percentage charged by a lender for borrowing money, or the percentage earned on deposited funds. It's the cost of using someone else's money (when you borrow) or the reward for letting someone use yours (when you save). Interest rates are typically expressed as an annual perc
Internal controls are the policies, procedures, and systems a business puts in place to safeguard assets, ensure accurate financial reporting, and prevent fraud. They're the checks and balances that keep money from going missing, errors from compounding, and employees from having unchecked access to
Invoice factoring is a financing method where a business sells its unpaid invoices to a third-party company (called a factor) at a discount in exchange for immediate cash. Instead of waiting 30, 60, or 90 days for clients to pay, you get most of the money upfront — typically 80-95% of the invoice va
An invoice is a document sent by a seller to a buyer that itemizes products or services provided and requests payment. It includes the amount owed, payment terms, due date, and details about the transaction. Invoices are both a request for payment and a legal record of the sale — they're essential f
IRS Form 1099 is a family of tax forms used to report various types of income other than wages and salaries. The most common for businesses is the 1099-NEC (Nonemployee Compensation), which you must file when you pay a contractor, freelancer, or vendor $600 or more in a year. The 1099 tells the IRS
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A ledger is a book or digital record that organizes all financial transactions by account. While a journal records transactions chronologically as they happen, a ledger groups them by account — all cash transactions together, all rent payments together, all revenue together. The general ledger is th
A lien is a legal claim on an asset that serves as security for a debt or obligation. If you don't pay what you owe, the lienholder has the right to seize or force the sale of the asset to recover their money. Liens can be placed on real estate, vehicles, business equipment, or even bank accounts. T
A line of credit (LOC) is a flexible loan that gives you access to a set amount of money that you can draw from as needed. Unlike a traditional loan where you receive a lump sum, a line of credit lets you borrow only what you need, repay it, and borrow again — similar to a credit card but typically
Liquidity measures how quickly and easily an asset can be converted into cash without significantly losing value. Cash is the most liquid asset. Real estate is one of the least liquid — selling a building takes months. For businesses, liquidity means having enough cash and near-cash assets to meet s
Loan-to-value (LTV) is a ratio that compares the amount of a loan to the appraised value of the asset being purchased or used as collateral. Expressed as a percentage, LTV helps lenders assess risk — the higher the LTV, the riskier the loan. An 80% LTV means you're borrowing 80% of the asset's value
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Margin has two meanings in business and finance. In accounting, margin refers to the difference between revenue and costs, expressed as a percentage — gross margin, operating margin, and net profit margin all measure profitability at different levels. In investing and lending, margin means borrowing
A maturity date is the date on which a financial instrument — like a loan, bond, or certificate of deposit — comes due and the principal must be fully repaid or the investment is returned. It marks the end of the term. On the maturity date of a loan, the final payment is made. On the maturity date o
A merchant account is a type of bank account that allows your business to accept credit and debit card payments from customers. It acts as a holding account where card transaction funds are temporarily deposited before being transferred to your regular business bank account, usually within 1–3 busin
Merchant services is an umbrella term for the financial services, tools, and technology that enable businesses to accept and process electronic payments. This includes credit and debit card processing, point-of-sale systems, payment gateways, mobile payments, and related services like chargeback man
A minimum balance is the lowest amount of money you must keep in a bank account to avoid fees or qualify for certain benefits like waived monthly charges, higher interest rates, or free transactions. Banks set minimum balance requirements to ensure accounts remain profitable to maintain.
A money market account (MMA) is a type of deposit account offered by banks and credit unions that typically earns a higher interest rate than a regular savings account while still providing limited check-writing and debit card access. It combines features of both savings and checking accounts.
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. The borrower makes regular payments of principal and interest over a set term (typically 15 or 30 years), and the lender has the right to foreclose on the property if payments aren't made.
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Net income is the total profit your business earns after subtracting all expenses — including operating costs, interest, taxes, depreciation, and amortization — from total revenue. It's the "bottom line" on your income statement and the most comprehensive measure of your business's profitability.
Net profit margin is the percentage of revenue that remains as profit after all expenses have been deducted. It tells you how many cents of every dollar in revenue your business actually keeps as profit. A 15% net profit margin means you keep $0.15 of every $1 earned.
Net revenue is your total revenue minus returns, allowances, and discounts. It represents the actual amount of money your business earns from sales after accounting for the revenue you didn't get to keep. It's also called net sales and appears near the top of your income statement.
Net worth is the total value of what your business owns (assets) minus what it owes (liabilities). It's the most straightforward measure of your business's financial position and represents the residual value that would belong to the owners if all assets were sold and all debts were paid.
A NOC code (Notification of Change code) is a message sent by a receiving bank through the ACH network to notify the originating bank that account information on a transaction needs to be corrected. It flags issues like incorrect account numbers, routing numbers, or account types without rejecting t
Non-sufficient funds (NSF) occurs when a bank account doesn't have enough money to cover a transaction — like a check, ACH payment, or automatic withdrawal. The bank declines the transaction and typically charges the account holder an NSF fee, which usually ranges from $25 to $35.
A note payable is a written promise by your business to pay a specific amount of money to a lender or creditor by a certain date. It's essentially a formal IOU that includes the principal amount, interest rate, and repayment terms. Notes payable appear as liabilities on your balance sheet.
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An operating expense (OPEX) is any cost your business incurs through its normal day-to-day operations. This includes rent, utilities, payroll, office supplies, insurance, and marketing — basically everything it takes to keep the lights on and the business running. Operating expenses do not include t
Operating income is the profit your business earns from its core operations after subtracting operating expenses from gross profit. It shows how much money your business actually makes from doing what it does — before interest, taxes, and non-operating items. It's also called operating profit or EBI
Overdraft protection is a banking service that prevents your account from going negative by automatically transferring funds from a linked account — like a savings account, credit card, or line of credit — when your checking balance is too low to cover a transaction. It's designed to save you from c
An overdraft occurs when you spend or withdraw more money than what's available in your bank account, causing your balance to go negative. When a bank allows the transaction to go through despite insufficient funds, it's called an overdraft. Banks typically charge a fee — often $25 to $35 — each tim
An owner's draw is when a business owner takes money out of the business for personal use. Unlike a salary, a draw isn't a fixed payroll payment — it's simply the owner withdrawing funds from their ownership stake. Owner's draws are common in sole proprietorships, partnerships, and LLCs that aren't
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Par value is the nominal or face value assigned to a share of stock or a bond when it's first issued. For stocks, par value is usually a very small amount — like $0.01 or $1.00 per share — and has little connection to the stock's actual market price. For bonds, par value is typically $1,000 and repr
A payee is the person or business that receives a payment. When you write a check, the payee is the name on the "Pay to the order of" line. In any financial transaction — wire transfer, ACH payment, invoice — the payee is the party getting the money.
Payment processing is the system that handles the transfer of money from a customer to a business when a purchase is made. It involves multiple parties — the customer's bank, the merchant's bank, and a payment processor — working together to authorize, verify, and settle the transaction. This happen
Payroll is the process of paying your employees for the work they've done. It includes calculating wages, withholding taxes and deductions, distributing paychecks, and filing the required tax reports with the government. Payroll also refers to the total amount a business spends on employee compensat
PCI compliance refers to meeting the security standards set by the Payment Card Industry Data Security Standard (PCI DSS). If your business accepts, processes, stores, or transmits credit card information, you're required to follow these standards. PCI compliance protects your customers' card data f
A personal guarantee is a legal commitment where a business owner agrees to be personally responsible for repaying a business debt if the business can't. It means the lender can come after your personal assets — house, car, savings — if your business defaults on the loan. Most small business loans a
Plaid is a financial technology company that connects your bank account to apps and services. It acts as a secure middleman between your bank and the software you use — like accounting tools, payment apps, or investment platforms. When an app asks you to "link your bank account," Plaid is often the
A point of sale (POS) is where a customer completes a purchase — both the physical location and the technology system used to process the transaction. Modern POS systems include hardware (card readers, registers, tablets) and software that handles payments, tracks inventory, manages employees, and g
A power of attorney (POA) is a legal document that gives someone else the authority to act on your behalf in financial, legal, or business matters. The person granting the power is called the "principal," and the person receiving it is the "agent" or "attorney-in-fact." A POA can be broad (covering
Preferred stock is a type of ownership share in a company that gives holders priority over common stockholders when it comes to dividends and asset distribution if the company is liquidated. Preferred stockholders receive fixed dividend payments before common stockholders get anything. However, pref
A prepaid card is a payment card that you load with money in advance. Unlike a credit card, you can only spend what you've loaded — there's no borrowing involved. Unlike a debit card, it's not connected to a bank account. Prepaid cards carry a Visa or Mastercard logo and can be used anywhere those n
In lending, principal is the original amount of money you borrow — before any interest is added. When you make loan payments, part goes toward reducing the principal and part goes toward interest. The faster you pay down the principal, the less total interest you'll pay over the life of the loan.
Profit sharing is a compensation plan where a business distributes a portion of its profits to employees. The amount each employee receives is typically based on a formula tied to salary or position. It's a way to reward employees for contributing to the company's success and align their interests w
A promissory note is a written promise to pay a specific amount of money to a specific person or business by a certain date. It's a legally binding document that spells out the loan amount, interest rate, payment schedule, and what happens if you default. Think of it as a formal, enforceable IOU.
A purchase order (PO) is a formal document a buyer sends to a seller to request specific goods or services at an agreed price. It becomes a legally binding contract once the seller accepts it. Purchase orders specify quantities, descriptions, prices, delivery dates, and payment terms — keeping both
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Real-time payments (RTP) are electronic fund transfers that are processed and settled instantly — within seconds, 24/7/365. Unlike ACH transfers that take 1-3 business days, real-time payments deliver money to the recipient's account almost immediately. In the U.S., the RTP network is operated by Th
A receivable (or accounts receivable) is money that customers owe your business for goods or services you've already delivered but haven't been paid for yet. It's recorded as a current asset on your balance sheet because it represents cash you expect to collect in the near future — typically within
A recurring payment is an automatic, scheduled transaction that happens at regular intervals — weekly, monthly, quarterly, or annually. You authorize the payment once, and it repeats until you cancel it. Common examples include subscription services, loan payments, insurance premiums, and utility bi
Refinancing means replacing an existing loan with a new one — usually to get a lower interest rate, reduce monthly payments, or change the loan terms. The new loan pays off the old one, and you start making payments on the new terms. Businesses refinance to save money, free up cash flow, or consolid
A remittance is a transfer of money, typically sent to another party as payment for goods, services, or obligations. The term is most commonly used for international money transfers — when someone sends money across borders. In business, remittance also refers to the payment information sent alongsi
A reserve requirement is the minimum amount of cash that banks must hold in reserve against customer deposits. Set by the central bank (the Federal Reserve in the U.S.), it determines how much of your deposited money a bank can lend out versus how much it must keep on hand. As of 2020, the Fed reduc
Retained earnings are the cumulative profits your business has kept (retained) rather than distributed to owners as dividends or draws. It's the money your business has earned over its entire lifetime that's been reinvested back into the company. Retained earnings appear in the equity section of you
Return on Assets (ROA) is a financial ratio that measures how efficiently your business uses its assets to generate profit. It's calculated by dividing net income by total assets. ROA tells you how much profit your business earns for every dollar of assets it owns — whether that's cash, inventory, e
Return on Equity (ROE) measures how much profit your business generates relative to shareholders' equity — the amount owners have invested plus retained earnings. It's calculated by dividing net income by shareholder equity. ROE shows how effectively your business uses owner-invested money to genera
Revenue is the total amount of money your business earns from selling goods or services before subtracting any costs or expenses. It's the top line of your income statement and represents all the money flowing into your business from customers. Revenue is also called sales, gross sales, or turnover.
Revolving credit is a flexible loan arrangement that allows you to borrow money up to a predetermined limit, repay it, and borrow again as needed. Unlike a term loan where you receive a lump sum and pay it back over time, revolving credit gives you ongoing access to funds. Business credit cards and
Risk assessment is the process of identifying, evaluating, and quantifying potential risks that could negatively impact your business operations, finances, or strategic goals. It involves analyzing the likelihood of various risks occurring and their potential severity, then developing strategies to
A Roth IRA is a retirement account where you contribute after-tax dollars, and your withdrawals in retirement are completely tax-free. Unlike traditional IRAs where you get an upfront tax deduction but pay taxes on withdrawals, the Roth IRA flips this — no immediate tax benefit, but no taxes later.
A routing number is a nine-digit code that identifies a specific bank or credit union in the United States. It's used to process electronic transfers, direct deposits, automatic payments, and check transactions. Every bank has at least one routing number, and larger banks may have different routing
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An SBA (Small Business Administration) loan is a partially government-guaranteed loan designed to help small businesses access affordable financing. While banks actually provide the money, the SBA guarantees 70-90% of the loan amount, reducing the bank's risk and allowing them to offer better terms
A secured loan is a loan backed by collateral — a specific asset the borrower pledges to the lender. If you default on the loan, the lender can seize and sell the collateral to recover their money. Common collateral includes real estate, equipment, inventory, or accounts receivable. Because collater
Securities are tradable financial instruments that hold monetary value. They represent ownership in a company (stocks), debt obligations (bonds), or rights to ownership (options). Securities are bought and sold in financial markets and are regulated by the Securities and Exchange Commission (SEC). F
A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan designed for small business owners and self-employed individuals. It allows you to contribute up to 25% of compensation or $69,000 (2024 limit), whichever is less, for yourself and any eligible employees. Cont
A service charge is a fee that a bank or financial institution charges for providing specific services or when your account doesn't meet certain requirements. Common service charges include monthly maintenance fees, overdraft fees, ATM fees, wire transfer fees, and minimum balance penalties. These f
Settlement is the process of completing a financial transaction by transferring funds from the buyer's account to the seller's account. In payment processing, settlement typically occurs 1-3 business days after a customer makes a purchase, when the money actually moves from the customer's bank to yo
A shareholder is a person or entity that owns shares (stock) in a corporation. Shareholders are the legal owners of the company and typically have voting rights on major company decisions, the right to receive dividends when declared, and a claim on the company's assets if it's liquidated. Also call
Simple interest is a method of calculating interest based only on the principal amount — the original sum of money borrowed or invested. Unlike compound interest, simple interest doesn't earn interest on previously earned interest. It's calculated using the formula: Interest = Principal × Rate × Tim
A sinking fund is money set aside regularly to pay for a large future expense or to pay off debt. Instead of facing a huge bill all at once, you save smaller amounts over time to build up the full amount needed. Businesses use sinking funds for equipment replacement, major repairs, debt repayment, o
A small business loan is financing specifically designed for businesses that meet Small Business Administration (SBA) size standards — typically fewer than 500 employees or less than $7.5 million in annual revenue, though limits vary by industry. These loans help small businesses start, grow, purcha
A soft inquiry (or soft pull) is when someone checks your credit report for informational purposes without affecting your credit score. Unlike hard inquiries, soft inquiries don't require your explicit permission and don't show up when lenders review your credit history. They're commonly used for pr
A sole proprietorship is the simplest business structure where you and your business are legally the same entity. There's no formal registration process — if you start earning income from business activities, you're automatically a sole proprietor unless you choose a different structure. You report
A standing order is an automatic, recurring bank transfer that moves a fixed amount of money from your account to another account on a regular schedule. You set it up once, and the bank automatically processes the transfer — weekly, monthly, quarterly, or annually — until you cancel it. Standing ord
A statement of cash flows is a financial report that shows how cash moves in and out of your business over a specific period. It breaks cash flow into three categories — operating, investing, and financing activities — to reveal where your money is actually coming from and where it's going.
A stock option is a contract that gives the holder the right — but not the obligation — to buy or sell a specific number of shares at a predetermined price (the strike price) within a set time period. In a business context, stock options are most commonly used as employee compensation to attract and
A stop payment is an instruction you give your bank to cancel a check or scheduled payment before it's processed. It prevents the funds from leaving your account, effectively voiding the transaction. Banks typically charge a fee of $15–$35 for this service.
Subchapter S is a special tax election that allows a corporation to pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes. S corporations avoid double taxation by having profits and losses flow directly to shareholders' personal tax returns, while ma
Subordinated debt is a loan or bond that ranks lower in priority for repayment than other debts if the borrower defaults or goes bankrupt. If the business fails, subordinated debt holders only get paid after senior debt holders are fully repaid. In exchange for this higher risk, subordinated debt ty
A SWIFT code (Society for Worldwide Interbank Financial Telecommunication) is an international bank identifier used for wire transfers and other cross-border transactions. Also called a BIC (Bank Identifier Code), it's an 8 or 11-character code that uniquely identifies a specific bank and branch for
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The break-even point is the moment when your total revenue exactly equals your total costs — you're not making money, but you're not losing it either. It tells you the minimum amount of sales you need to cover all your fixed and variable expenses. Anything above break-even is profit; anything below
The prime rate is the interest rate that banks charge their most creditworthy customers — typically large corporations. It serves as a benchmark for many types of loans and credit products. Most small business loans, credit cards, and lines of credit are priced as "prime plus" a certain percentage,
The quick ratio (also called the acid-test ratio) measures your business's ability to pay its short-term debts using only its most liquid assets — cash, marketable securities, and accounts receivable. It excludes inventory because inventory can't always be converted to cash quickly. A quick ratio ab
The repo rate (repurchase agreement rate) is the interest rate at which banks and financial institutions borrow money from each other (or from a central bank) by selling securities with an agreement to buy them back at a slightly higher price. It's a key mechanism central banks use to control the mo
A tax ID number is a unique identifier assigned by the IRS to track taxpayers for federal tax reporting purposes. For businesses, this is typically an Employer Identification Number (EIN). For individuals, it's their Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
A term loan is a loan for a specific amount that's repaid over a predetermined period through regular monthly or quarterly payments. Unlike a line of credit that can be drawn and repaid repeatedly, a term loan provides a lump sum upfront that's paid back on a fixed schedule, typically with interest.
A time deposit is a deposit account that requires money to be left in the account for a specified period of time to earn a promised interest rate. The most common type is a certificate of deposit (CD). In exchange for agreeing not to access your funds for months or years, banks pay higher interest r
Title insurance is a policy that protects property buyers and mortgage lenders against financial loss from defects in a property's title or ownership history. Unlike other insurance that protects against future events, title insurance protects against past issues that could affect your legal right t
Trade credit is a short-term financing arrangement where suppliers allow businesses to purchase goods or services and pay for them later, typically within 30 to 90 days. It's essentially a supplier giving you an interest-free loan by letting you receive products before payment is due.
A transaction fee is a charge imposed by financial institutions or payment processors for processing a financial transaction such as a credit card payment, wire transfer, ATM withdrawal, or ACH transfer. These fees help cover the costs of processing, security, and maintaining the payment infrastruct
A Treasury bill (T-bill) is a short-term debt security issued by the U.S. government with maturities of one year or less. T-bills are sold at a discount to face value and mature at par, with the difference representing the interest earned. They're considered one of the safest investments because the
A treasury bond (T-bond) is a long-term debt security issued by the U.S. federal government with a maturity of 20 to 30 years. T-bonds pay a fixed interest rate (called a coupon) every six months and return the full face value at maturity. They're considered one of the safest investments available b
A trust account is a bank account held by a trustee on behalf of one or more beneficiaries. The funds in the account are managed according to the terms of a trust agreement, and the trustee has a fiduciary duty to act in the beneficiaries' best interests. Trust accounts are used in estate planning,
A trust is a legal arrangement where one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). Trusts are commonly used in estate planning, business succession, and asset protection. The person who creates the trust is called the grantor or settlor.
The Uniform Commercial Code (UCC) is a comprehensive set of laws governing commercial transactions in the United States. It standardizes rules for sales of goods, leases, negotiable instruments, bank deposits, letters of credit, and secured transactions across all 50 states. The UCC isn't a federal
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Underwriting is the process a financial institution uses to evaluate the risk of lending money to a borrower or insuring a person or business. The underwriter reviews financial information — income, credit history, assets, liabilities — to decide whether to approve the application and on what terms.
An unsecured loan is a loan that doesn't require collateral — no property, equipment, or other assets backing the debt. The lender approves the loan based on the borrower's creditworthiness, income, and financial history alone. If the borrower defaults, the lender can't seize specific assets but can
Usury refers to the practice of charging excessively high or illegal interest rates on a loan. Most states have usury laws that cap the maximum interest rate a lender can charge. Rates above that cap are considered usurious, and the lender may face penalties, voided contracts, or legal action.
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A variable rate (also called an adjustable or floating rate) is an interest rate on a loan or financial product that changes periodically based on a benchmark index. When the benchmark rises, your rate rises; when it falls, your rate falls. Common benchmarks include the prime rate, SOFR (Secured Ove
Vault cash is the physical currency and coins a bank keeps on hand in its vault to meet day-to-day customer withdrawal demands. It counts toward a bank's reserve requirements set by regulators. Vault cash is the most liquid asset a bank holds — it's literally the cash in the building.
Venture capital (VC) is a type of private equity financing where investors fund early-stage, high-growth-potential companies in exchange for equity (ownership stake). VC firms raise money from institutional investors and wealthy individuals, then deploy it into startups they believe can generate out
Venture debt is a type of loan designed for venture-backed startups that may not qualify for traditional bank loans. It's typically used alongside or shortly after an equity funding round, providing additional capital without significant dilution. Lenders often receive warrants (the right to purchas
Vesting is the process by which an employee or founder earns full ownership of benefits — typically stock options, equity, or retirement contributions — over a set period of time. Until shares or benefits are fully vested, you don't completely own them. If you leave before vesting completes, you for
A virtual card is a digital payment card number generated for online or remote transactions without a physical plastic card. It has a card number, expiration date, and CVV — just like a physical card — but exists only digitally. Virtual cards can be single-use, merchant-locked, or set with spending
A voided check is a paper check with the word "VOID" written across it, making it unusable for payment. It's used to provide your bank account information — routing number and account number — to employers, vendors, or anyone setting up electronic transfers to or from your account. The voided check
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A W-2 (officially Form W-2, Wage and Tax Statement) is a tax form that employers must send to each employee and the IRS at the end of every year. It reports the employee's annual wages, the amount of taxes withheld from their paycheck (federal, state, Social Security, Medicare), and other compensati
A W-9 (Request for Taxpayer Identification Number and Certification) is an IRS form that businesses use to collect the legal name, address, and taxpayer identification number (TIN or SSN) of independent contractors, freelancers, and vendors they pay. The information on the W-9 is used to prepare 109
A waiver is a voluntary relinquishment of a known right or claim. In banking and business, waivers are used when a lender, bank, or counterparty agrees to forgo enforcement of a specific requirement, fee, or covenant — usually temporarily or under certain conditions. Waivers don't eliminate the unde
Wealth management is a comprehensive financial advisory service that combines investment management, tax planning, estate planning, and other financial services into a coordinated strategy. It's typically aimed at high-net-worth individuals and business owners who need holistic financial guidance be
A wire transfer is an electronic method of sending money directly from one bank account to another, typically processed within the same business day. Wire transfers move through secure banking networks (Fedwire for domestic, SWIFT for international) and are considered one of the fastest and most rel
Withholding is the portion of an employee's wages that an employer deducts and sends directly to the government for income taxes, Social Security, and Medicare. The amount withheld is based on the employee's W-4 form, filing status, and earnings. Withholding ensures taxes are paid incrementally thro
Working capital is the difference between a business's current assets (cash, accounts receivable, inventory) and current liabilities (accounts payable, short-term debt, accrued expenses). It measures how much liquid resources a business has available to fund day-to-day operations. Positive working c
A write-off is an accounting action that reduces the value of an asset on the books and records it as an expense. In business, write-offs typically refer to either tax deductions (business expenses that reduce taxable income) or the removal of uncollectible debts from accounts receivable. Either way
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The yield curve is a graph that plots interest rates (yields) of bonds with equal credit quality but different maturity dates — typically U.S. Treasury bonds. The x-axis shows time to maturity (3 months to 30 years), and the y-axis shows yield. The shape of the curve reveals market expectations abou
Yield is the income earned on an investment, expressed as a percentage of the investment's cost or current value. In banking, yield most commonly refers to the annual percentage yield (APY) on savings accounts, CDs, or bonds — essentially, how much your money earns by sitting in an account or invest
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Zelle is a digital payment network that lets you send and receive money directly between U.S. bank accounts, typically within minutes. It's built into most major banking apps and doesn't charge fees for sending or receiving payments.
A zero-balance account (ZBA) is a checking account that is automatically maintained at a zero balance. At the end of each day, funds are either swept into a master account (if there's a surplus) or transferred from a master account (to cover debits). ZBAs are a cash management tool that helps busine