Fintech Glossary

ACH (Automated Clearing House)#

A batch-processing network for US electronic funds transfers that operates on a T+1 or T+2 settlement cycle.

AI Reconciliation#

The use of machine learning models to probabilistically match complex financial transactions and identify anomalies that deterministic rule-based engines miss.

ARR (Annual Recurring Revenue)#

Annual Recurring Revenue (ARR) is the annualized value of recurring subscription contracts. It represents the yearly revenue a business expects from its current subscription base.

• Calculated as MRR multiplied by 12, or by summing annualized contract values
• Primary metric for enterprise SaaS companies with annual contracts
• Distinguishes between contracted ARR (committed) and actual recognized revenue
• Used by investors and analysts to value subscription businesses

Account Reconciliation#

The process of verifying that a specific financial account's balance in the general ledger matches the corresponding external statement (bank, credit card, or vendor) for a given period.

Accounts Payable#

Accounts payable (AP) represents money a company owes to its suppliers and vendors for goods or services received but not yet paid for. It is recorded as a current liability on the balance sheet.

• AP includes invoices from suppliers, utility bills, and other short-term obligations due within one year
• Three-way matching (PO, receipt, invoice) is a key AP control to prevent overpayment and fraud
• AP automation reduces processing costs, accelerates approvals, and improves vendor relationships
• AP turnover ratio measures how quickly a company pays its suppliers, affecting cash flow management

Accounts Receivable#

Money owed to a business by its customers for goods or services delivered on credit.

• AR represents a key current asset on the balance sheet
• Effective AR management improves cash flow and reduces DSO
• Automation tools can accelerate collections and reduce manual effort
• AR aging reports help prioritize collection activities

Accrual#

An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash is actually received or paid.

• Accrual accounting provides a more accurate picture of financial performance than cash-basis accounting.
• Common accruals include accrued revenue (earned but not yet billed) and accrued expenses (incurred but not yet paid).
• Accruals require adjusting journal entries at period-end to recognize transactions in the correct period.
• Automating accrual calculations reduces manual effort and ensures consistent application of accounting policies.

Audit Trail#

A complete, chronological record of all changes to financial data, documenting who made each change, when it was made, and what was modified.

• Essential for regulatory compliance, SOC 2 certification, and financial audits.
• Must be immutable, once recorded, audit trail entries cannot be modified or deleted.
• Enables forensic investigation of discrepancies, fraud detection, and dispute resolution.
• Modern systems capture audit trails automatically at the transaction level, not just at period-end.

Automated Payment Reconciliation#

The programmatic enforcement of data consistency between internal ledgers and bank statements using ETL pipelines and fuzzy matching logic.

Balance Sheet Reconciliation#

Balance sheet reconciliation is the process of verifying that general ledger account balances are accurate, complete, and supported by underlying documentation. It ensures the integrity of assets, liabilities, and equity reported in financial statements.

• Key accounts reconciled include cash, accounts receivable, accounts payable, inventory, fixed assets, and accruals
• Reconciliation compares GL balances to subledgers, bank statements, third-party confirmations, and supporting schedules
• Variance investigation identifies and resolves differences through adjusting entries or error correction
• Month-end balance sheet reconciliation is a critical control for accurate and timely financial close

Bank Reconciliation Automation#

The process of parsing legacy banking file formats (MT940, BAI2) to normalize data for modern tech stacks without manual intervention.

Banking-as-a-Service (BaaS)#

APIs that enable non-banks to offer banking products by connecting to licensed financial institutions.

• Provides regulatory umbrella and bank charter access
• Exposes core banking features via API (accounts, cards, payments)
• Examples: Unit, Treasury Prime, Bond

Cash Application#

Cash application is the process of matching incoming customer payments to their corresponding open invoices in accounts receivable. It ensures payments are correctly allocated, receivables are updated, and cash is accurately reflected in financial records.

• Automates the accounts receivable reconciliation process by linking payments to specific invoices
• Uses AI and OCR to parse remittance advice documents that accompany payments
• Handles complex scenarios like partial payments, overpayments, and short pays
• Critical for high-volume B2B businesses with hundreds or thousands of open invoices

Chart of Accounts#

A structured list of all accounts used in the general ledger, organized by category (assets, liabilities, equity, revenue, expenses).

• Serves as the foundation for all financial reporting and analysis
• Each account has a unique number and name following a hierarchical structure
• Standard frameworks include GAAP and IFRS classifications
• Proper COA design enables accurate financial consolidation and reporting

Continuous Close#

Continuous close is an accounting approach where financial books are maintained in a close-ready state throughout the accounting period, rather than performing all reconciliation and adjustments at month-end.

• Enables daily or real-time reconciliation instead of batch month-end processing
• Reduces the traditional close crunch by spreading work across the period
• Provides more timely financial visibility for decision-making
• Requires automation and integration across financial systems to be practical

Days Sales Outstanding (DSO)#

The average number of days it takes for a company to collect payment after a sale has been made.

• DSO is a key metric for measuring AR efficiency and cash flow health
• Calculated as (Accounts Receivable / Total Credit Sales) x Number of Days
• Lower DSO indicates faster collections and better working capital
• Industry benchmarks vary, but reducing DSO improves liquidity

Deferred Revenue#

Deferred revenue (also called unearned revenue) is a liability representing payments received for goods or services not yet delivered. Under ASC 606, revenue is recognized as performance obligations are satisfied, not when cash is received.

• SaaS companies record annual subscriptions as deferred revenue, recognizing monthly as service is provided
• Deferred revenue appears as a current liability (due within 12 months) or long-term liability on the balance sheet
• Revenue recognition schedules track the systematic conversion of deferred revenue to earned revenue
• Proper deferred revenue management is critical for accurate financial reporting and ASC 606 compliance

Disbursement#

A disbursement is the payment or distribution of funds from a business to external parties such as vendors, employees, or partners. It represents the outflow of cash from company accounts.

• Includes vendor payments, payroll, refunds, and partner distributions
• Requires proper authorization, documentation, and reconciliation controls
• Tracked against accounts payable records to ensure completeness
• Subject to timing differences between initiation and bank settlement

Double-Entry Ledger#

An accounting method where every transaction creates two entries (debit and credit) to maintain balance.

• Fundamental to ensuring financial data integrity
• Formula: Assets = Liabilities + Equity
• Prevents value creation/destruction errors

Embedded Finance#

The integration of financial services (lending, payments, insurance) into non-financial applications.

• Allows platforms like SaaS or marketplaces to offer financial products.
• Requires robust infrastructure for compliance and ledgering.
• Examples include a ride-sharing app offering debit cards to drivers.

Embedded Payments#

A subset of embedded finance where payment processing functionality is integrated directly into a software application's interface, removing the need for redirects.

Exception Handling#

The process of identifying, investigating, and resolving discrepancies found during reconciliation.

• Exceptions arise when transactions cannot be automatically matched or reconciled
• Common causes include timing differences, data entry errors, and missing records
• Effective exception handling requires clear workflows and escalation paths
• AI-powered systems can auto-classify and prioritize exceptions for faster resolution

Financial Close#

The process of finalizing all financial transactions and records for a specific accounting period, ensuring accuracy and completeness before producing financial statements.

• Financial close occurs at the end of each accounting period (monthly, quarterly, annually).
• Involves reconciling accounts, reviewing adjusting entries, and ensuring all transactions are recorded.
• A faster close cycle improves decision-making by providing timely financial visibility.
• Modern fintech operations aim for continuous close capabilities to reduce the traditional close period from weeks to days.

Financial Data Hub#

A centralized platform that ingests, normalizes, and stores financial data from disparate sources (banks, gateways, ERPs) to provide a single source of truth for reporting.

Financial Events System#

An architecture based on Event Sourcing where the system stores the sequence of immutable events rather than just the current state.

Financial Operations Infrastructure#

Backend systems that handle data ingestion, ledgering, reconciliation, and controls for fintech products.

• Sits between banking partners and product logic
• Ensures scalability and accuracy of financial data
• Reduces manual operations workload

Fintech Infrastructure#

The backend architectural components, including ledgers, payment rails, and compliance tools, that enable the building and scaling of financial applications.

Fintech Ledger#

A real-time, double-entry record system that tracks all financial transactions and money movements within a fintech product.

• High-throughput transaction processing
• Immutable audit trail
• Source of truth for user balances

General Ledger#

The master accounting record that contains all financial transactions for an organization, organized by account.

• The general ledger (GL) is the foundation of double-entry bookkeeping, recording debits and credits for every transaction.
• It organizes transactions by chart of accounts, including assets, liabilities, equity, revenue, and expenses.
• Sub-ledgers (accounts receivable, accounts payable, inventory) feed summarized entries into the GL.
• Maintaining an accurate GL is essential for financial reporting, audits, and regulatory compliance.

Intercompany Reconciliation#

Intercompany reconciliation is the process of verifying and eliminating transactions between related entities within a corporate group. It ensures that intercompany receivables and payables net to zero in consolidated financial statements.

• Intercompany transactions include management fees, shared services, inventory transfers, and intercompany loans
• Reconciliation identifies differences caused by timing, FX rates, cutoff issues, and recording errors
• Elimination entries remove intercompany balances and transactions from consolidated financials
• Complex multi-entity structures require systematic matching across currencies, systems, and accounting periods

Internal Ledger#

A 'shadow' ledger representing the business intent of a transaction, providing immediate feedback separate from the bank's settlement reality.

Journal Entry#

A record of a financial transaction in an accounting system, documenting debits and credits to specific accounts in the general ledger.

• Journal entries are the fundamental building blocks of double-entry bookkeeping, ensuring every transaction balances.
• Each entry includes a date, account references, amounts (debit and credit), and a description or memo.
• Manual journal entries require review and approval workflows to prevent errors and fraud.
• Automated journal entry posting eliminates manual data entry and reduces month-end close time significantly.

KYC/KYB#

Know Your Customer (KYC) and Know Your Business (KYB) are regulatory compliance processes for verifying the identity of individuals and businesses before establishing financial relationships.

• KYC applies to individual customers and includes identity verification, address verification, and risk assessment
• KYB extends these requirements to business entities, verifying ownership structure, beneficial owners, and business legitimacy
• Required by anti-money laundering (AML) regulations across most jurisdictions
• Modern fintech platforms automate KYC/KYB through API integrations with identity verification providers

KYC/KYB#

Know Your Customer / Know Your Business. Regulatory processes to verify the identity of clients to prevent financial crime.

• Mandatory for most fintech applications.
• KYC verifies individuals; KYB verifies business entities.
• Often integrated via third-party identity providers.

Ledger-as-a-Service (LaaS)#

Infrastructure-as-Code for accounting that provides pre-built, immutable double-entry accounting primitives via API.

Ledgering#

The process of recording financial transactions in a system of record (ledger) to track balances, assets, and liabilities.

• In fintech, ledgering refers to the real-time tracking of user balances.
• Must support double-entry accounting principles for accuracy.
• Crucial for avoiding balance drift between internal databases and bank accounts.

MRR (Monthly Recurring Revenue)#

Monthly Recurring Revenue (MRR) is the predictable revenue a subscription business expects to receive every month. It normalizes subscription revenue to a monthly basis regardless of billing frequency.

• Calculated by summing all active subscription values normalized to monthly amounts
• Core SaaS metric used for forecasting, valuation, and operational planning
• Tracks components like new MRR, expansion MRR, contraction MRR, and churned MRR
• Requires proper reconciliation between billing systems and recognized revenue

Month-End Close#

A subset of financial close specifically focused on finalizing the books at the end of each calendar month, typically involving reconciliation, accrual adjustments, and reporting preparation.

• Most fintechs run month-end close processes to provide regular financial snapshots.
• Common steps include bank reconciliation, revenue recognition review, and expense accruals.
• Manual month-end close processes often take 5-10 business days; automated systems can reduce this to 1-3 days.
• Delays in month-end close can impact investor reporting, board meetings, and operational decision-making.

Multi-Currency Ledger#

A ledger system that handles FX revaluation, maintaining both the native transaction currency and a normalized base reporting currency.

Multi-Entity Ledger#

A database architecture designed to support organizations with multiple legal entities, allowing for strict data segregation and consolidated reporting.

• Supports complex organizational hierarchies
• Enables inter-company transfers and settlement
• Critical for marketplaces and platforms

Operational Ledger#

The high-volume transactional source of truth that powers product logic, distinct from the general ledger used for accounting.

• Real-time balance updates for users
• Handles granular metadata needed for product features
• Feeds aggregated data to the General Ledger (ERP)

Payment Gateway#

A payment gateway is a technology service that authorizes and processes credit card and digital payments between merchants and customers. It securely transmits transaction data between the payment portal and the acquiring bank.

• Payment gateways encrypt sensitive card data to ensure secure transmission during online transactions
• Gateway fees typically include per-transaction charges, monthly fees, and sometimes setup costs
• Popular gateways include Stripe, PayPal, Adyen, Square, and Braintree with varying features
• Gateway settlement reports are essential for reconciling transactions against bank deposits

Payment Lifecycle Automation#

The use of Finite State Machines (FSM) to strictly enforce valid transitions for a payment from initiation to settlement and reconciliation.

Payment Operations#

The operational workflows required to move money, including authorization, capture, settlement, and exception handling.

• Involves managing relationships with payment processors and banks.
• Includes handling returns, chargebacks, and failed payments.
• Modern payment ops relies on API-driven infrastructure.

Payment Orchestration#

An architectural layer that decouples checkout from specific PSPs, enabling smart routing, failover, and provider agility.

Payment Rail#

The underlying network infrastructure (ACH, Wire, RTP, FedNow) facilitating funds movement, each with distinct speed, cost, and risk profiles.

Payment Reconciliation#

Matching payment records between internal systems and external sources (banks, processors) to ensure accuracy.

• Identifies missing, duplicate, or failed payments
• Verifies fees and net settlement amounts
• Automates month-end close processes

Payout Reconciliation#

Payout reconciliation is the process of matching outgoing payments to vendors, sellers, or partners against internal records to verify accuracy and completeness of disbursements.

• Essential for marketplaces that distribute funds to sellers after transactions
• Verifies that PSP settlement payouts match expected amounts after fees
• Tracks timing differences between payment initiation and bank clearing
• Ensures compliance with contractual payout terms and schedules

Real-Time Reconciliation#

An event-driven reconciliation model that processes webhooks and instant payment notifications immediately rather than waiting for end-of-day batch files.

Reconciliation#

The process of comparing two sets of records to ensure they are in agreement and identifying discrepancies.

• Automated reconciliation matches transactions using IDs, amounts, and dates
• Essential for detecting fraud, operational errors, and accounting discrepancies
• Three-way reconciliation involves matching the ledger, payment processor, and bank
• Modern AI-powered reconciliation achieves 99%+ auto-match rates

Reconciliation Automation#

The process of automatically matching transactions across multiple systems (banks, processors, internal records) to identify discrepancies.

• Uses rules and algorithms to match high volumes
• Reduces manual spreadsheet work
• Improves financial accuracy and audit readiness

Reconciliation Engine#

A backend state machine that compares financial datasets and manages the lifecycle of a transaction's verification state from ingestion to matching.

Reconciliation Exceptions#

Reconciliation exceptions are discrepancies identified during the reconciliation process that require investigation and resolution. They occur when matched records have differences in amounts, dates, or other attributes, or when transactions cannot be matched at all.

• Exceptions are categorized by type: amount variances, timing differences, missing transactions, and duplicate entries
• Exception management workflows route items to appropriate reviewers based on type, amount, and priority
• Resolution involves investigation, adjustment entries, write-offs, or escalation depending on root cause
• Exception metrics including volume, aging, and resolution time are key indicators of reconciliation health

Remittance Advice#

Remittance advice is a document sent by a payer to a payee that identifies which invoices are being paid with an accompanying payment. It enables accurate cash application by providing invoice-level detail.

• Typically includes invoice numbers, amounts, and any adjustments or deductions
• May arrive via email, EDI, or alongside wire/ACH payment details
• OCR and AI technologies automate extraction of remittance data
• Critical for accurate cash application when payments cover multiple invoices

Revenue Recognition#

Revenue recognition is the accounting principle that determines when revenue should be recorded in financial statements. Under ASC 606 and IFRS 15, revenue is recognized when control of goods or services transfers to the customer.

• ASC 606 five-step model: identify contract, identify obligations, determine price, allocate price, recognize revenue
• Point-in-time recognition applies when control transfers at a specific moment (product delivery)
• Over-time recognition applies when control transfers gradually (subscription services, long-term contracts)
• Multi-element arrangements require allocating transaction price to separate performance obligations

SOC 2 Compliance#

An auditing procedure ensuring a service provider securely manages data to protect the interests of the organization and the privacy of its clients, critical for fintech vendors.

Settlement#

Settlement is the process of transferring funds from the cardholder's bank to the merchant's bank account after a payment transaction is authorized. Settlement timing varies by processor and can range from same-day to several business days.

• Gross settlement pays the full transaction amount, with fees deducted separately
• Net settlement deducts processing fees before depositing funds to the merchant
• Settlement cycles vary: T+1 (next day), T+2, or weekly batches depending on processor
• Settlement reconciliation matches individual transactions to bank deposits accounting for fees

Subledger#

A subsidiary ledger that contains detailed transaction records for a specific account category, which are summarized and posted to the general ledger.

• Common subledgers include accounts receivable (AR), accounts payable (AP), inventory, and fixed assets.
• Subledgers provide granular detail while keeping the general ledger clean and manageable.
• The total of all transactions in a subledger must equal the corresponding control account balance in the GL.
• Subledger reconciliation is critical for ensuring the accuracy of consolidated financial statements.

Three-Way Matching#

A verification process that compares purchase orders, receiving reports, and invoices to ensure accuracy before payment authorization.

• Three-way matching is a cornerstone of accounts payable controls, preventing overpayment and fraud.
• The process matches three documents: the purchase order (PO), the goods receipt or receiving report, and the vendor invoice.
• Discrepancies between any of the three documents trigger exception workflows for manual review.
• Automated three-way matching reduces processing time from days to minutes while improving accuracy.

Timing Difference#

A temporary discrepancy between a bank statement and an internal ledger caused by delays in processing (e.g., ACH settlement times, checks in transit, or time zone variances).

Transaction Ledger#

An immutable, append-only log of every financial event (debits and credits) that serves as the bedrock of financial integrity.

Transaction Matching#

Transaction matching is the automated process of comparing records from different data sources to identify corresponding entries. In financial operations, it pairs transactions from payment processors, bank statements, and internal systems to verify accuracy and completeness.

• Matching algorithms compare multiple fields including amounts, dates, references, and counterparties to identify pairs
• One-to-one, one-to-many, and many-to-many matching patterns handle splits, aggregations, and partial payments
• AI-powered matching learns from historical patterns to improve accuracy and handle fuzzy matches
• Unmatched items route to exception queues for manual review and resolution

Two-Way Matching#

Two-way matching is a verification process that compares purchase orders to vendor invoices to confirm that the billed amount matches what was ordered. Unlike three-way matching, it does not require goods receipt verification.

• Compares PO line items, quantities, and prices against the corresponding invoice
• Commonly used for services, subscriptions, and items that do not require physical receipt
• Faster and simpler than three-way matching while still providing financial controls
• Ideal for recurring expenses where delivery confirmation is implicit or unnecessary

Unmatched Transactions#

Unmatched transactions are records that fail to pair with corresponding entries during the reconciliation matching process. They represent discrepancies that require investigation to determine whether the cause is timing, data quality, or a genuine financial exception.

• Common causes include timing differences between systems, data format inconsistencies, and missing records
• Aging analysis tracks how long transactions remain unmatched to prioritize investigation
• Automated classification categorizes unmatched items by likely cause to streamline resolution
• Persistent unmatched items may indicate process failures, fraud, or system integration issues

Variance Analysis#

The practice of comparing actual financial results against budgets, forecasts, or prior periods to identify and explain differences (variances).

• Helps identify unexpected trends, operational issues, or opportunities for improvement.
• Common variance types include revenue variance, cost variance, and volume variance.
• Effective variance analysis requires timely, accurate data from reconciled financial records.
• In fintech, variance analysis often focuses on transaction volumes, fee income, and operational costs.

Virtual Account (vIBAN)#

A routing pointer or 'pass-through' address that maps to a master physical account, primarily used to automate payment attribution.

Wallet Ledger#

A composite data structure for marketplaces that segregates the high-performance view layer (cache) from the immutable source of truth (SQL).