When it comes to finances, knowing the basics is essential—but understanding some lesser-known terms can give you a competitive edge. Here are five financial terms you may not encounter every day, but that could make a big difference in how you manage and grow your business.
- Amortisation
Amortisation refers to the process of gradually repaying a loan or other liability over a period. Unlike interest-only loans, amortisation includes both principal and interest in each payment, which reduces the debt consistently over time. For businesses with equipment or property loans, understanding amortisation can help you better manage your long-term debt strategy. - Ex Gratia Payment
This term is all about goodwill. An ex gratia payment is a voluntary payment made without legal obligation, often used to show goodwill in a business relationship or to cover unexpected situations. While it’s not a standard operating expense, having room in your budget for ex gratia payments can improve client relationships or employee morale. - Contra Account
A contra account offsets a related account, like sales or revenue, often used to track returns, allowances, or discounts. For example, a “sales returns” account may reduce overall sales in your accounting records. Understanding contra accounts ensures accurate financial statements and gives you a clearer view of real revenue. - Debenture
A debenture is a type of debt instrument that a company issues, typically without collateral. It relies on the company’s creditworthiness and reputation rather than a specific asset. Knowing about debentures can be helpful if you’re considering raising funds or expanding through outside investment options. - Accrued Expenses
These are expenses that have been incurred but not yet paid, such as wages or utility bills. Accrued expenses ensure that your financial statements accurately reflect liabilities, even if payment hasn’t been made yet. Regularly reviewing accrued expenses helps prevent surprises at tax time and keeps your finances organized.
Expanding your vocabulary with these financial terms can make it easier to communicate with your accountant, make strategic decisions, and enhance your understanding of your business’s financial health. Ready to dig deeper? Reach out to BJT Business Advisors—we’re here to support your financial growth.
