Sometimes when I look at the headings on some of the articles I write, even I sometimes think “No, that’s too simple.” The truth is that as soon as you look under the hood of most credit departments you find that it is the seemingly simple things that cause most difficulty.
The question posed this week has two parts:
1. Do you send out invoices on a daily basis?
If you don’t you should, and if you are a very small operation and you are trying to do it all yourself then make a routine and create and post your invoices at least twice a week say on a Wednesday and a Friday.
If you send out your invoices monthly with your Statements the customer is already getting a month’s credit! Some Companies have a policy that they record an invoice on the date it is received – so by sending them with the statements by definition the invoice will be received the following month so you are adding another month to your own expected payment date. Work through the example – 30 day terms set – the customer takes this to mean the month end following the recording of the invoice.
Your deliver goods on the 2nd Feb – according to my advice you send the invoice on the 3rd – your customer receives the invoice enters it on their system as a February invoice with a payment due date of 31st March.
By sending the invoices with the Statement the invoice is received in the first week in March they enter it on their system as a March invoice with a payment due date of the 30th April.
An extra month! I am assuming (always a dangerous thing to do) the account is going to be paid on time – more and more companies are pushing for 60 days which would mean payment at the end of May.
Now their logic might state that this is 60 days – you and I can count and the time gap between the 2nd of February and the 31st of May is in fact 119 days – far too long to have to wait in my opinion.
The second point is one that always upsets me – there are only two things on an invoice a price and a quantity and in some instances customers require their Purchase Order Number to be quoted on the invoice. Why then are there huge Multinationals with huge Dispute Resolution Departments? Why are Credit Controllers in midsized Companies spending a large portion of their days resolving queries? Why are payments delayed because of disputes on invoices?
Get it right. Get everyone in your organisation to “Get it Right”. Start a campaign “Right first Time – every time” The results will outweigh the initial pain of implementation.
If you are sending out incorrect invoices, you risk annoying your customers, your sales figures are wrong, your margin figures are wrong – need I go on.
Last point in all my years as a Credit Manager, while we would have received calls about alleged overcharges we got no calls to say we undercharged! If we are genuinely getting it wrong chances are we are undercharging as much as we are overcharging and this could be having a significant impact on your margin. Not to mention the cost and the time put into correcting things that have gone wrong. There is also the hidden cost of the lack of confidence of your Credit Controllers – who might be more inclined to raise a Credit Note if they are in the habit of doing so.