For any business that allows its customers to pay on terms, management of invoices are a big part of the business' internal processes. This means inefficient invoice management can be a drag on business performance, costing the business more in labor and time. On the other hand, great invoice management will allow the business to run at optimal efficiency, at least in its accounting department. No matter how well-managed invoices are, they will certainly have an impact on the bottom line, either positive or negative.
In this blog we'll go over what you need to know about optimal invoice management.
Invoice Presentation and Design
Invoice presentation deals with the actual items included on the invoice. This is the itemization of the purchased goods or services. For products and services, invoice content may look similar. Both will have line items made up of descriptions, unit prices, subtotals, additional cost, and a total. There will also be a due date, early pay date and discount if they apply, and late payment fee information.
The goal is to have the customer fully understand what they've purchased, which reduces support calls about the purchase. Those same details also help the support staff in the case the customer does have questions about the invoice.
Invoice design goes hand in hand with your branding. Sure - you could print out the invoice on white paper with your company name at the top but what kind of branding will that convey? Probably not much. Think of the invoice as a billboard for your company and brand. Add your logo and company slogan to the invoice to enhance its appearance and provide a consistent experience with every customer contact point. Customers that see your branding every time they interact with your company will begin to think of the company differently. Meaning, you'll start building customer loyalty.
The actual design of your invoice is done in your accounting software. Most accounting software packages allow you to add a logo, other graphics, color, and rearrange where different elements appear on the invoice. Depending on the accounting software, you may be able to choose from a few invoice design templates instead of starting from a blank invoice. Rather than tinkering around with invoice design, you can choose a ready-made template and go on about your business.
If you are starting to go digital with your invoicing, instead of printing out a paper invoice, you can create a pdf invoice. This can be attached to an email and sent to your customers.
Don't forget foundational content such as your address, phone number, email address, and website.
Setting Credit Terms
Setting customer credit terms is part art and part science. That's because there are some numbers to help you quantify creditworthiness but other areas aren't so cut and dried. A number of factors go into creditworthiness including:
- Credit score.
- Monthly debt payments compared to income.
- Interest rates on existing debt.
- How much credit has the customer been seeking?
- Is the business growing?
- How many customers does the business have?
- Customer references.
You'll have to come to a conclusion on how risky you think the customer is. Each company makes its own determination. Part of determining risk is knowing how much you can absorb if the customer isn't able to pay.
New customers usually start on the most strict terms, especially startups and unknown customers. Stricter terms such as net 30 days and $1,000 maximum credit create a known risk. Giving a new customer 60 days terms with a $100,000 credit limit is extremely risky since you don't have first-hand payment information on the customer. Once the customer establishes a payment history with you, you can relaxe their terms (i.e., better terms).
Your best customers will have the best credit and discount terms. Discount terms are used when the customer pays an invoice early. On the invoice, discount terms are expressed as "2/10 net 30." That means the customer will receive a 2% discount if they pay the invoice in 20 days (i.e., ten days early) rather than 30. Otherwise, the invoice is due in 30 days.
Digital Vs. Paper Invoices
If you are processing paper invoices, you might wonder what the big deal is with digital invoices. After all, if everything is working fine, why change what isn't broke? Compared to digital invoices, paper invoices are very inefficient. Sure - you might have a workflow nailed down that makes the whole process seem simple. But there are costs that you aren't seeing. Below are just a few.
Storage cost: All of that paper has to be stored somewhere. If a customer has a question two years later about an invoice, do you really want to say, "I don't know?" Probably not. Paper documents stored in-house take away space that could have been used as office space. In other words, revenue-generating space. Boxes full of documents don't generate revenue. Additionally, that space requires rent, air conditioning, and lights, which are all expenses.
Off-site storage is certainly an option. That gets the documents out of your building and frees up office space. But off-site storage isn't free. Additionally, if you need to find a specific document, you'll have to travel to another location. Not exactly an efficient process.
Inability to search:Paper documents can't be searched. Imagine how quickly you can pull up a digital invoice just by searching for a particular keyword. Now imagine the same thing with paper invoices. You get the picture.
Lost documents: Accessing documents and moving the around introduces an opportunity for lost documents.
Stolen documents:Sticky fingers will find that paper invoices and associated documents are easy prey.
Fraudulent documents:It isn't too difficult to doctor a paper invoice. For an employee who wants to siphon a little more money into their pocket over long periods of time, paper documents present an excellent opportunity.
Sending invoices by regular mail is a time-consuming task. However, not all of your customers will want digital invoices. This means mailing invoices probably can't be eliminated completely from your workflow.
For those customers who choose to receive invoices digitally, most accounting software will allow you to send the invoice directly from the accounting program. The invoice may go out as an attachment or a link that customers click, which will bring them to your website so they can securely view and pay their invoice. The graph below lists if the supplier invoices come into one place:
Credit cards are becoming the defacto standard for payment acceptance, even for B2B. Modern accounting applications allow business owners to accept credit cards as payment for invoices. Other forms of payment, such as ACH and paper checks, are must-haves. Both will be with us for a long time but in a reduced volume.
Automating Your Invoice Workflows
You may have seen a theme in this article. The more you can digitize, the easier life will be. Processing paper documents is labor-intensive and has various administrative cost, as is the case with paper document storage. Digital workflows are more efficient all-around and open the door to automation.
Automation means allowing software to perform repetitive tasks. The software will do the same task the same way every time. This ability to execute in the same manner each and every time decreases the chance for errors.
Going digital may be intimidating. But taking it in steps will allow you to become more and more efficient with each step.
- Invoice presentation and design deals with how the actual invoice is organized and laid out
- Setting your credit terms for customers means giving them a timetable for when they are to pay you
- Utilizing digital or paper invoices is up to your company and what would be best for your customers, however digital invoices are a lot easier to keep track of
- Understanding the different payment types, and offering multiple of them to your customers can create for a better experience for them
- Automating your invoice workflows allows you the opportunities to save time and cut costs on labor intensive work