ERP terms, explained without the jargon
Plain definitions of the terms that come up when a business outgrows its spreadsheets. Written for people running a company, not for people who already work in software.
Updated July 2026
ERP (Enterprise Resource Planning)
An ERP is business software that runs accounting, inventory, sales, purchasing and people from one shared database, so that a single action updates every part of the business it touches.
ERP vs accounting software
Accounting software records financial transactions after they happen. An ERP also runs the operations that create those transactions, so the accounts are a by-product of the work rather than something re-entered afterwards.
Three-way match
A three-way match is a control that compares the purchase order, the goods received note and the supplier invoice before payment is approved, so you only pay for what you ordered and actually received.
Landed cost
Landed cost is what a product actually costs you by the time it is on your shelf, including the purchase price plus freight, duty, clearance, insurance and handling.
Cost of goods sold (COGS)
Cost of goods sold is the direct cost of the products you sold in a period. It is what you subtract from revenue to get gross profit, and it is the number most often wrong in businesses that track stock outside their accounts.
Perpetual inventory
Perpetual inventory means stock levels update with every movement in and out, so the system always holds a current figure. The alternative, periodic inventory, only knows the true position when somebody counts it.
Reorder point
A reorder point is the stock level at which you need to buy more. It is set from how fast the item sells and how long the supplier takes to deliver, plus a buffer for both being unpredictable.
FIFO vs weighted average costing
FIFO values the stock you sold at the cost of the oldest units you bought. Weighted average values it at the blended cost of everything you hold. Both are accepted, but they produce different profit figures when prices move.
Work in progress (WIP)
Work in progress is the value of things you have started but not finished: partly built products, or a project where costs have been incurred and not yet billed. It sits on the balance sheet as an asset until it becomes a finished good or an invoice.
Accounts receivable ageing
An ageing report groups what customers owe you by how overdue it is, usually in buckets of current, 30, 60, 90 and over 90 days. It is the fastest read available on whether your cash problem is a sales problem or a collections problem.
Credit limit
A credit limit is the maximum a customer can owe you at any point before further sales are held. It is the main tool a business has for capping its exposure to a single customer failing to pay.
Consignment stock
Consignment stock is inventory you have placed with a customer or agent but still own. It stays on your balance sheet, and revenue is only recognised when they actually sell it.
Purchase requisition vs PO
A purchase requisition is an internal request to buy something. A purchase order is the approved commitment sent to the supplier. The requisition asks; the order commits.
SKU (stock keeping unit)
A SKU is the unique code for one distinct sellable item, specific enough that two things a customer would consider different never share one. Size, colour, pack quantity and variant each need their own.
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