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The Invoice the instrument to get paid – Josef Busuttil

10 Dec 2019 12:00 | Deleted user
The Accountant – The Future Professional Accountant in Business. Autumn 2019 (MIA Publication)
Businesses compete not only when they are selling but also when they are getting paid. Very often, especially in business-to-business trade, our customers do not owe money only to our firm but also to other suppliers. Hence, our firms may be one of many suppliers chasing money from the same customer. This means that we are actually competing with other suppliers to get paid requiring us to gain and sustain a competitive advantage just like when we are selling our goods and services to them – we need to convince our customers to prefer us over other suppliers not only when we sell our products and services, but when it comes to payment of invoices, too.


We are all aware that late payments can negatively affect our cash flow. If cash flow is the lifeblood of every business organisation, issuing proper invoices is the recipe that keeps the blood fl owing within the business.
Unfortunately, one can identify several mistakes when suppliers issue invoices to their customers which result in late payment, increasing the cost of managing our Accounts Receivable. Correct invoicing is, therefore, critical that to ensure prompt payment by customers.
But is there any particular art or science in issuing an effective invoice? The answer is, yes.
Simply put, the invoice is the document used by suppliers requesting payment for the goods and services sold to customers; an important task in the business transaction for every organisation. Customers will not pay unless served with a correct and properly scripted invoice and suppliers should give the necessary attention to how the invoice is draft ed while following the invoicing process to ensure sound cash inflow.
Lacking an efficient and accurate invoicing process triggers complaints and disputes between supplier and customer because customers cannot be expected to pay invoices, they believe to be incorrect. Oft en, suppliers send incorrect or improper invoices because they may not be well aware of what an invoice is, what it should consist of, and when to send it to customers.
What is an invoice?
An invoice is simply a supplier’s request for payment for the goods and/or services purchased by a customer.
The main and sole scope of an invoice is to facilitate the payment for the goods sold or for the services rendered.
Therefore, an invoice should be a straightforward document requesting payment from customers, without advertising clutters or any other unnecessary details and information written or printed on it.
Good credit management practices suggest that suppliers should facilitate timely payments by serving customers with invoices that are simple to read and understand, that accurately describe the products and services purchased by the customer, include all the necessary information and are served to customers promptly.
Efficient Collection is all about timing – the sooner you ask for money, the sooner you get paid.
Figure 1. shows the four key elements of an effective invoicing and invoicing process - TACU.


Timeliness is important. An invoice should be sent immediately following a sale. A customer can only pay when an invoice is received. Therefore, sending invoices promptly results in more efficient payments. Invoices should also be properly dated.
Accurately written invoices minimise disputes and complaints between the supplier and the customer and customers are not expected to pay if they have a dispute. Exact quantities, good description of goods and services purchased, prices and any discounts should be quantified accurately.
A complete invoice showing all the required details, including payment terms and conditions of sale, help the payment process to run smoothly. Customers will not pay if an invoice is incomplete and will request such invoices to be amended as appropriate by the suppliers, leading to late payment.
Customers should understand fully what is written on the invoice. Easy and simple to understand invoices help customers reconcile the goods and services received and payment will be made accordingly.
Figure 2. illustrates how an invoice should be written keeping the four key TACU elements in mind for better effectiveness.
What should an invoice consist of?

The Monthly Statement
Following the invoice, it is always commendable to send monthly statements to customers. Monthly statements serve to remind credit customers to pay their dues according to the agreed terms and inform them of the amount owed to the supplier. Monthly statements should be clear, accurate and understandable and they should refer to previous invoices.
It is helpful to indicate the age of the debt status, such as Current, 30 days overdue, 60 days overdue, 90 days overdue as shown in the figure 3. below.
What should a Monthly Statement consist of?


Josef Busuttil is the Director General of MACM - Malta Association of Credit Management and President of FECMA - Federation of European Credit Management Associations.He obtained his MBA from Henley Management College, a Member of the Chartered Institute of Marketing (UK), and Fellow of the Chartered Institute of Credit Management (UK).Josef contributed to and delivered a number of intuitive credit management workshops and presentations organised by highly reputable international organisations and business schools. He is a regular contributor of business articles to international business press.

MACMMalta Association of Credit Management The Malta Associati on of Credit Management (MACM) is a notfor-profi t organisati on, providing a central nati onal organisati on for the promoti on and protecti on of all credit interest pertaining to Maltese businesses. MACM represents the credit profession across all economic sectors. It is a centre of experti se for all matt ers relati ng to credit management in Malta. MACM off ers a range of services to the local creditors, including, credit management informati on systems, credit management education, training, conferences, seminars, and lobbying acti viti es. It is the CICM (UK) accredited Training Centre for Malta. MACM is a member of the Federati on of European Credit Management Associati ons – FECMA. MACM is the distributor of Graydon Internati onal Credit Reports in Malta.



               
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