Freelancer Invoice Glossary
20+ essential terms every UK freelancer should know. From Net 30 to IR35, we explain it all in plain English.
A
Accounts Receivable
Money owed to you by clients for completed work. Appears as an asset on your balance sheet.
Example: You have £15,000 in accounts receivable if you're waiting on 3 invoices for £5,000 each.
B
Bad Debt
Money owed to you that you're unlikely to collect. Can often be written off as a business expense.
Example: A client went bankrupt owing you £3,000, this is likely a bad debt.
C
Change Order
A formal document modifying the original project scope, timeline, or cost.
Example: Client wants additional pages on their website; you send a change order for £500 extra.
Credit Note
A document reducing or cancelling the amount owed on a previous invoice.
Example: Client paid for 10 hours but only used 8; you issue a credit note for the unused 2 hours.
D
Due on Receipt
Payment is expected immediately upon receiving the invoice.
Example: Common for final payments or small-value invoices.
I
IR35
Tax legislation designed to identify contractors who work like employees. Affects how you pay tax and National Insurance.
Example: If you work for one client, at their office, following their schedule, you may be "inside IR35."
L
Limited Company
A separate legal entity from its owner(s). Offers liability protection but has more administrative requirements.
Example: A freelancer earning £60,000+ might incorporate to reduce tax through dividends.
N
Net 30
Payment terms requiring the client to pay within 30 days of the invoice date.
Example: An invoice dated January 1st with Net 30 terms is due by January 31st.
Net 14
Payment terms requiring payment within 14 days of the invoice date.
Example: Commonly used for ongoing retainer work or smaller invoices.
Net 7
Payment terms requiring payment within 7 days of the invoice date.
Example: Often used for rush work or with new, unestablished clients.
P
Pro Forma Invoice
A preliminary invoice sent before work begins or goods are delivered, often used to request upfront payment.
Example: A 50% deposit request before starting a project.
Payment on Account
Advance payments towards next year's tax bill, required if your tax bill exceeds £1,000. Two payments of 50% each.
Example: If you owe £3,000 this year, you'll also pay £3,000 in advance (split into two £1,500 payments).
Purchase Order (PO)
A document from a buyer authorising a purchase. Large companies often require a PO number on invoices.
Example: "Please reference PO-12345 on your invoice for our accounts team."
R
Retainer
An ongoing agreement where a client pays a fixed amount monthly for a set scope of work or access to your services.
Example: A £1,500/month retainer for 10 hours of marketing support.
S
Scope Creep
When a project gradually expands beyond the original agreement, often without additional compensation.
Example: "Can you just add one more feature?" repeated 10 times.
Sole Trader
A self-employed person who is the sole owner of their business. You and the business are legally the same entity.
Example: Most freelancers start as sole traders before considering limited company status.
Self Assessment
HMRC's system for collecting Income Tax from self-employed individuals. Deadline is 31 January for online submissions.
Example: You must file a Self Assessment tax return if you earned over £1,000 from freelancing.
V
VAT (Value Added Tax)
A consumption tax of 20% (standard rate) that VAT-registered businesses must charge on goods and services. Required if turnover exceeds £90,000.
Example: A £1,000 invoice becomes £1,200 with 20% VAT.