Business operations
glossary.

Operating profit is what a business earns from its core activities after subtracting all operating expenses from gross profit, but before interest and tax. It shows whether the business model is profitable on its own terms.

Opportunity cost is the value of the best alternative you give up when choosing one option over another. It applies to decisions about money, time, and capacity - helping businesses understand the true trade-off behind every choice.

A written document sent to a customer confirming their order has been accepted and will proceed on the agreed terms. It records the items ordered, the agreed price, payment schedule, and expected delivery or completion date.

Overhead refers to the indirect costs a business incurs to keep operations running, unrelated to producing a specific product or delivering a service. Common examples include rent, utilities, insurance, and management salaries.

The percentage added to direct job costs to ensure a business recovers its fixed overhead expenses - rent, utilities, insurance, and administrative salaries - across every project it completes in a period.

In print and promotional merchandise production, an overrun is the quantity produced above the customer's ordered amount. Suppliers invoice for actual delivered quantity, which may be up to 10% more than the original order.

When a business takes on more work than its cash flow can sustain - growing revenue faster than it collects payment. Despite a full order book, the business struggles to pay suppliers, wages, and overheads on time because cash is leaving faster than it arrives.

PMS (Pantone Matching System) assigns a unique numeric code to each colour. In promotional merchandise, specifying a PMS reference ensures consistent brand colour reproduction across different suppliers, products, and decoration methods.

A formal written notice served by the paying party in a UK construction contract to reduce payment below the notified sum, specifying the sum considered due and the basis of that calculation.

The payback period is the time required for a capital investment to generate cash returns equal to its initial cost. It tells a business owner how quickly their outlay will be recovered before the investment starts delivering net benefit.

A payment certificate is a written statement issued by the contract administrator, architect or project manager confirming the sum due to the contractor for work carried out up to a stated valuation date. On most UK projects it also serves as the payer's payment notice under the Construction Act.

The process of grouping multiple approved supplier invoices into a single batch for payment rather than processing each one individually. Most businesses run payments weekly or bi-weekly to manage cash flow and reduce processing time.

Payment terms are the agreed conditions defining when an invoice must be paid, any early-payment discount available, and the consequences of late payment. Common formats include Net 30, Net 60, due on receipt, and milestone-based stage payments for longer projects.

A payment application is a formal claim by a contractor or sub-contractor for the value of work done and materials supplied in a period, made under a construction contract. It starts a statutory notice timetable that a plain invoice does not.

A financial guarantee provided by a surety - usually an insurer or bank - on behalf of a contractor. It protects the project client if the contractor fails to complete the works, and is typically issued for 10% of the contract value.

A document - physical or digital - that instructs warehouse or fulfillment staff on which items to retrieve from stock, in what quantities and from which locations, to pack and dispatch a specific customer order.

A sales metric comparing the total value of active opportunities in a pipeline to the revenue target for a period, expressed as a multiple. A ratio of 3:1 to 5:1 is typically considered a healthy benchmark.

The total monetary value of all open quotes and opportunities in a sales pipeline at a given moment - representing the maximum revenue available if every live deal were won. Used to assess whether there is enough work in play to hit targets.

A long-term contract in which a third-party funder installs, owns, and maintains a solar PV system on a business's premises, and the business pays only for the electricity it generates at a fixed, below-grid rate.

Practical completion is the certified milestone at which construction works are substantially complete and the client can take possession, even with minor defects outstanding. It starts the defects liability period, stops liquidated damages and triggers the first release of retention.

A process in which buyers screen potential contractors or suppliers before inviting them to tender, assessing financial stability, technical capability, insurance cover, and relevant project experience.

A preferred supplier is a business or individual that has been pre-assessed and approved for repeat purchasing. Preferred status means agreed pricing, confirmed payment terms, and known lead times are already on record, eliminating the vetting cycle on each new order.

The general and indirect costs in a construction contract that cover site setup, management, temporary works, and enabling activities - not tied to any specific measured work item.

A price book is a structured catalog of products and services with preset prices and margins, used to ensure every quote is built from a consistent pricing foundation across the sales team.

A price quotation is a formal document stating the exact price at which a seller will supply specified goods or services. Unlike an estimate it is a fixed offer, so acceptance within the validity period normally forms a contract at that price.

A provisional allowance in a construction contract budget for work or materials to be supplied by a subcontractor or supplier chosen by the client. The figure is replaced in the final account once the nominated party's actual price is confirmed.

A preliminary document sent to a customer before goods are delivered or work is complete, stating the expected price and terms. Used to request advance payment or a deposit. A pro forma invoice is not a tax invoice and does not record a completed sale.

Procure-to-pay (P2P) is the end-to-end process running from identifying a purchasing need through to paying the supplier, linking purchase requisitions, orders, goods receipt, invoicing, and payment into one controlled workflow.

The gradual reduction in a project's gross margin between the original estimate and the final account. A job priced at 18% margin that closes at 5% has experienced profit fade - the margin existed at bid stage but eroded during delivery without being recovered.

A financial report showing a business's total revenue, costs, and expenses over a set period. The difference between income and costs reveals whether the business made a net profit or a net loss.

A method of invoicing where a contractor or supplier bills for work completed to date at regular intervals throughout a project, rather than raising a single invoice at completion. Keeps cash flowing and reduces financial exposure on long-running jobs.

A document that sets out the scope, objectives, budget, timeline, and key requirements of a project before work begins. It gives clients and contractors a shared starting point and reduces the risk of inaccurate quotes and scope disputes.

The formal customer sign-off on a supplier-produced visual showing exact logo placement, colors, and decoration specification before production begins. Required for all custom-decorated promotional products, branded apparel, and printed items.

An estimated allowance included in a construction or fit-out contract for work that is known to be required but cannot be fully defined or priced at the time of contract signing. Formally instructed and adjusted to actual cost in the final account.

A supplier's hosted catalog that a corporate buyer accesses from inside their own procurement system, with completed baskets returning as purchase requisitions rather than orders placed on the supplier's site.

The purchase ledger is a subsidiary accounting record that tracks every purchase transaction a business makes with its suppliers, showing which invoices remain outstanding and which have been paid, with the total feeding into the accounts payable control account.

The difference between the standard (expected) cost of a purchased item and its actual purchase cost. Calculated as: (actual price minus standard price) multiplied by quantity purchased. A positive result indicates overspend against plan; a negative result indicates a saving.

A purchase requisition is an internal document submitted by an employee to request approval to make a purchase. Once approved, it authorizes the procurement team to raise a purchase order with the supplier.

A purchase order is the document a buyer sends a supplier to place an order, stating what is being bought, in what quantity, at what agreed price, and for delivery where and when. It becomes a contract once the supplier accepts it.

The process of reading project drawings and specifications to count, measure, and list all materials, components, and work items required to complete a project. The output feeds cost estimates, bills of quantities, and procurement planning.

Quotation validity is the period during which the price on a quotation is held open for the customer to accept. Once it passes, the supplier is free to re-price or withdraw and there is nothing left for the customer to accept.

The percentage of quotes sent to prospective customers that result in a confirmed order. A core sales performance metric that shows how effectively your quoting process turns opportunities into revenue.

Quote-to-cash (Q2C) is the end-to-end business process covering every step from issuing a price quote to a customer through to receiving and recording final payment - including order confirmation, delivery, invoicing, and collections.

A pre-defined list of standard prices for services, products, or labour used as the starting point for quotations. Rate cards reduce quoting time and maintain consistent, margin-aware pricing across the sales team.

A rebate is a retrospective payment from a supplier to a buyer, made after agreed purchasing targets have been met within a set period. Unlike a discount, it does not reduce the invoice price at point of sale.

The process of comparing two sets of financial records - typically internal accounts and an external statement - to confirm they agree and to identify and resolve any differences.

A document sent by a buyer to a supplier confirming that a payment has been made, identifying which invoices are included in the payment and the amounts applied to each.

The stock level at which a new purchase order should be placed to replenish inventory before it runs out. Calculated using average daily usage, supplier lead time, and a safety stock allowance.