Not getting paid for the work that you do or the products that you sell is very common and you can, unfortunately, expect to have at least one major ‘bad debt’ in your business life. At the moment the average ‘payment days’ on a 30 day invoice is 84 days and, despite the government intervening with legislation it has not reduced significantly. Now let’s understand that to the buyer, as with you, CASH IS KING, and therefore if you give them any reason to withhold payment they will willingly do so. Therefore it is important at the very beginning while you are planning the business, to plan an invoicing and credit control system that will bring your money in on time.
An invoice is essentially a detailed bill left by vendors and outside suppliers for goods or services rendered to a company. A typical invoice might list
- the quantity of each item,
- prices, billable hours,
- service description and
- a contact address for payment.
While some expenses may be paid out of a general fund or petty cash account, an invoice is usually paid through an accounts receivable department by the posted due date. An invoice is a legal document that can be used as evidence of an incurred debt. The recipient of the goods or services can challenge the legitimacy of individual charges, but the invoice itself is considered a bona fide debt. Sometimes a vendor or serviceman cannot collect on a bill immediately, so their company will send an invoice at a later date for payment. The actual daily expense of a service may be so low that a company will simply wait for a larger invoice to cover all of the costs at once. Vending machine attendants and bottled water providers may only send one invoice a month instead of invoicing the company a few Rand a day for supplies.
Not all invoices are bills of sale, however. A manufacturer may send out a ‘shipping invoice’, which details all the parts and accessories included in a particular order. This shipping invoice should be compared to the actual parts received by the store or customer. Car dealers also receive an invoice from the factory that details the actual price of the basic vehicle and any optional equipment installed. The dealer may offer a discount to the customer that seems to fall below the invoice price.
The use of an invoice as evidence of a legitimate debt can sometimes be abused. Unscrupulous companies may generate false invoices to account for missing funds or to inflate sales numbers to stockholders. An invoice is only enforceable and legal if corroborative evidence (inventory, duplicate bills, etc.) proves the goods actually exist or the service was actually performed. Companies and individuals do have the right to challenge suspicious invoices in a court of law. Some companies who use invoices frequently will design their own forms, but generic invoice forms can be ordered at office stationery suppliers. There are also computer programs available that can generate specialised invoice forms through the use of templates. A professional invoice should contain detailed information on the goods or services, clear and accurate prices and current contact information for any billing questions a client may have.
Does your invoice contain the following details?
- the key components and conditions of sale.
- the terms of payment.
- an invoice number with a date.
- the method of dispatch and date of dispatch.
- the quantity and description of goods.
- itemised list of goods and the total price (this would include VAT and carriage costs where appropriate).
- the terms
Keeping documentary evidence is essential, particularly when it comes to money. A proper invoicing procedure will be an invaluable tool in chasing cash from late payers. Written evidence will also serve you well if you ever have to contest an invoice you‘ve received or paid. You will want to give your customers the earliest possible notification that you will be requiring payment. Sending out acknowledgment slips and advice notes can help clear up any potential areas of difficulty. Remember, setting up effective financial controls within your business requires an organised, responsive and well-documented approach to dealing with customers.
Here’s the invoice process, step-by-step:
Company A agrees to buy goods from Company B.
- Company A sends a purchase order to Company B with a full description of goods and reference number.
- Company B delivers goods to Company A with a delivery note.
- Company B invoices Company A for the value of the goods.
- Company B periodically sends statements to Company A detailing all outstanding invoices.
- If there is a discrepancy in the cost, number or type of goods, then Company B can issue a credit note to Company A to cancel the invoice.