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Simply put, an invoice is a bill. It provides the customer with the necessary information to pay for goods ordered and delivered. It should also include any other pertinent information needed to pay the invoice in a timely and precise manner.

When Should the Invoice Be Sent?

Invoices should be sent as soon as possible after the goods have been shipped. The reason for this is simple. Let’s say your payment terms call for payment in 30 days. Most customers will start the clock counting from the time they receive the invoice. Thus, if you only send out invoices once a month, some customers may actually take 60 (or more) days to pay.

Now some reading this may declare that the terms are from the invoice date.However, that is not how most customers will count.Additionally, it takes most companies time to process invoices for payment. In many organizations, the invoice must be sent to the purchasing department for approval and then back to the accounts payable department for payment. These steps take time as approving an invoice is not typically a high priority. Also, the customer is in no hurry to make payment so the longer you delay in sending an invoice, the longer it will delay in making payment.

While printing invoices every day may not make sense for mid-size and smaller companies, once a month might not be an ideal solution either. Once or twice a week might be a reasonable approach.

Terms of an invoice

The payment terms indicate when an invoice is supposed to be paid. Few organizations will pay early. Many will pay late. It is the goal of the credit department to get as many customers to pay as close to stated terms as possible.The most desirable terms are referred to as open account. This means the customer is given the goods and does not have to pay for them for some time. In many industries the terms are net 30. This means that the customer is expected to pay in 30 days. Here’s where it gets a little vague. The seller wants the invoice paid within 30 days of the invoice date. However, most customers believe that the payment is due 30 days after receiving the invoice—hence the need to get the invoice out quickly.

Terms are generally dictated by industry. For example, the food industry tends to have shorter terms, say seven or ten days, while some machinery manufacturers might have longer terms, even as long as 180 days. Those selling internationally will find that most companies in other parts of the world are accustomed to longer terms, with 60 days and longer not being considered uncommon.

Sometimes, in order to induce early payment, companies offer a discount for quick payment. The much-fabled 2/10 net 30 is a common example. In this case, payment is expected in 30 days. However, if the customer will pay in ten days or less, it may take a 2% discount.While 2% may not seem like a big discount, it translates into an annual return of approximately 36%—a rate that few companies have earned in recent times.

The problem with offering discounts to induce early payment is that some customers take the discount but don’t pay early. It can be a huge problem for some companies. Customers that don’t qualify for open-account terms, either because their credit history doesn’t warrant it, because their payment history is poor, or because they have not offered sufficient financial information or references can still be sold to. It can be done on a cash-in-advance (CIA) basis, a secured basis, or a cash-on-delivery (COD) basis. Cash in advance is preferable to COD because, as some companies have learned the hard way, COD has its pitfalls. Specifically:

• The person needed to sign the check may not be available when the driver shows up with the goods.

• No check is available when the goods are delivered.

• The customer changes its mind and does not offer payment when goods are delivered.

• The customer puts a stop payment on the check after it has accepted the goods.

• The check bounces after the goods have been delivered.

• The driver forgets to pick up the check when he delivers the goods.

Despite its drawbacks, COD is a viable option, especially when the amount of money is not large.

Due Date

As indicated above, customers generally start the clock ticking when the invoices arrive in their office. Sometimes they don’t start counting until the invoice arrives in the accounts payable department. One way to get around this issue is to make the due date crystal clear on the invoice. This will not guarantee payment when you think you should get it, but it will eliminate confusion over the correct date.

How to Make the Invoice Date Clear

There are several ways to make the due date clear. Making the date clear is just the first step in getting paid on time. Several ways to make that date crystal clear to the customer’s accounts payable department are to:

• Include the due date on the invoice. Don’t leave it up to the customer to calculate the date. They will do the calculation to their benefit, not yours.

• Include a statement that says “Pay this invoice by. . .”

• Bold the due date.

Information That Should Be Included on Invoices

The following information should be included on invoices:

• Addressing: correct address, company, department, contact person

• Description of delivery, product/services, quantities, delivery location and date

• Clear specification of the amount, including possible supplements

• Reference or purchase order number of the other party

• Order date

• Person/department who did the ordering

• Clear statement of payment conditions

• Clear statement of the desired method of payment

• Name and direct dial number of the credit manager responsible

Are Your Invoices the Cause of Your Collection Woes?

After taking a long hard look at their invoices, a number of credit professionals have discovered that part of their collection problems were selfinflicted. By making sure that the invoice leaves nothing to the discretion or imagination of the customer, these credit professionals were able to plug some of their collection leaks. Credit professionals can take one of their invoices and pretend to be on the other side of the fence. Is the due date spelled out clearly, or is it left up to the customer to calculate it? If there are two ways to interpret the due date, you can be guaranteed that you will calculate it one way and your customer the other. Don’t give your customer this opportunity. Print the due date on the invoice. The same goes for the amount due. Do you leave it up to the customer to calculate the discount? Make it simple for them. State that x amount is due if the invoice is paid before date 1 and y amount if paid after. Also make sure the invoice is clear and the customer can find the due date and amount due very easily.Where the check should be mailed to after it is drawn should be readily apparent. Many companies increase their float by simply mailing payments to the wrong part of the company. The check then spends a few days in interoffice mail. Finally, even though you have no real interest in increasing the number of calls coming into the department, put a name and phone number of the person responsible for resolving discrepancies on the invoice. By making it clear to the customer that you welcome phone calls, they may pick up the phone to resolve discrepancies instead of their calculators to do some creative accounting.