The Importance of Proper Invoicing Management
Invoices are extremely valuable pieces of documents and can be used to avail multiple safeguards and benefits. However, invoicing can often be considered a tedious and wasteful activity, which leads to careless invoicing due to human error. Situations like incorrect or missing addresses, accounting codes and invoice numbers—usually small and often overlooked details—can lead to delays in payments. Outstanding invoices have the ability to severely affect a company’s cash flow.
What is an Invoice?
An invoice is essentially a document that contains various details about a business transaction. The seller usually submits an invoice to the client or the buyer detailing the payment terms along with the services provided. It tells the buyer how much to pay the seller, and furnishes all the details of the sale. An average invoice contains the names and details of both parties, date of invoice, date of services sold, description of the service or product and the total charge. It can also include the terms and conditions of the agreement.
Why Is It Important to Properly Manage Invoices?
1. Gets you timely payments
Of course, the first and most important job of an invoice is to get you paid. Since an invoice contains all the relevant details of the services provided to the client and is essentially a bill requesting to be paid, it becomes the formal and proper means to let the client know it is time to pay you. As an invoice furnishes all the details, it helps answer any or all questions the client may have about the services and the fees for the same, thus ensuring a smoother, quicker workflow process with minimal confusion.
2. Helps establish legal rights
Many companies require a contract before the provision of services or goods in order to ensure that clients pay their dues as promised. An invoice serves as this contract, while also acting as legal documentation of the same. In case of non-receipt of payment, one could use invoices as proof in court to prove the amount of money owed to them.
3. Acts as audit evidence
Most companies become subject to an audit check at some point or the other. Systematically arranged invoices with the right dates and labels to help demonstrate a transparent payment process and ethical standards which always works in the company’s favour. It helps show the auditors that you are not hiding any extra-legal income and that you have reported all payments on time.
Tips to Ensure Proper Invoice Management
1. Come up with a payment plan that best fits your needs
Invoice processing can be separated into three broad categories: interim invoices, recurring invoices and final invoices.
In cases when you are working on a big project for a new client and require some sort of advance or interim period, one could use an interim invoice requiring the client to provide some kind of payment on a weekly, monthly or yearly basis. These could be recurring payments of small amounts as opposed to a large lump sum amount at the end.
Recurring invoices are usually used for ongoing projects. The client and company agree upon regular intervals at which they will be required to make payments. Getting your clients to agree on a regular interval will not only hold you to a timeline but also ensure timely payments and regular filing of invoices.
Final invoices are sent at the very end of the project, right after culmination. It includes details of any interim invoices sent during the project and all balances that are required to be paid for by the client. This helps clarify the details of payments for your client, your auditors as well as yourself.
2. Manage online copies of your invoices
You are, after all, in the 21st century. As a result, digitizing your invoice processing should definitely be a priority. Not only do applications and software these days help you keep track of your payments and tally the income with your balances, but they also ensure that you do not make common errors with your invoice management filing. Further, some of these apps make sure to send an automated reminder to the client to make a payment after the stipulated duration, this can help improve relationships with the client. It also helps ensure you have a paper trail in case of legal or audit requirements, as it ensures you are invoicing consistently.
3. Avoid common errors that can be detrimental in the long run
When it comes to invoice processing, there are a number of best practices to follow to ensure there are no hurdles in the long-run:
- It is important to make sure you send your invoices on time: Be it the timeline agreed upon by your client and you, or your own regular schedule. Timely invoices help ensure timely payments and also show auditors a clean income sheet.
- It is important to send the invoice on the right day: It is advised to avoid sending them on weekends, or on Fridays and Mondays. They may tend to be days on which your client overlooks this, assuming it can be done on a later date.
- It is important to clarify the terms of the agreement: Rid your client of any doubts regarding the agreement, by defining the terms of the contract clearly on the onset.
- It is important to double or even triple check the details before sending it in: Having to rewrite and resend an invoice can be a pain and can be considered unprofessional and careless, aside from doubling your work. Make sure the date, client’s name and invoice number are correct before you send your invoice to the client.
For small to mid-sized companies, proper invoicing is essential as it helps maintain the cash flow and avoid any costly errors for the business. The goal behind proper invoicing is also to ensure that the payment of these invoices is convenient for your customers as well. Use the tips listed above to ensure that your business has a proper invoice management system in place. It will help your company avoid unnecessary losses and troubles. After all, as the saying goes, ‘A Stitch in Time, Saves Nine’.