Invoicing is an integral part of every business; however, it's an area that’s often overlooked. Considering that over 60% of all invoices are paid late in the U.S., and billing errors often plague suppliers reducing their ability to get invoices paid on time, perhaps it’s time businesses reevaluated their invoicing practices.
Invoices are legal documents issued to a buyer when a supplier records the sale of a product or services rendered. Mainly used for tax, accounting, and inventory reporting purposes, invoices help suppliers keep track of any outstanding debts (accounts receivable) owed to them by a specific buyer.
Before a supplier receives their outstanding debt, their buyer has to issue payment. For buyers to issue payment, their supplier has to prove the debts they're owed and provide clear instructions on how to pay it. As a result, invoices serve two purposes: (1) as a record of sale for suppliers and (2) a notice of debt for buyers.
Thankfully, most billing issues suppliers face are avoidable and easily remedied with a quick audit of their existing invoice processes. To help suppliers streamline their billing efforts and get paid faster, LSQ has compiled a list of common elements and best practices for suppliers to follow when creating an invoice for a buyer.
What Elements Make Up an Ideal Invoice?
Unique invoice, PO, contract, reference, and tracking numbers
Company name, address, and relevant contact information
Company name, billing address, and relevant contact information
Issue date, payment due date, delivery date, and payment terms
Product or Services Descriptions
Quantity, cost per unit, and total cost
Early payment discounts, tax information, and invoice totals
Acceptable payment methods and bank account information
What Practices Should You Follow When Issuing an Invoice?
Be Transparent With Your Billing
Clearly listing the products or services you're billing for will help your buyer quickly identify why they're getting charged. Most invoices are read immediately upon receipt and receive one initial review. If the required information is not clearly stated (i.e., what is due, how much, when, and where to send the payment), your buyer may dispute or reject the invoice, resulting in delayed approval.
Strive for Consistency
To avoid mistakes and disputes, try to avoid creating invoices or making adjustments that are handwritten. Instead, utilize digital software to automate your billing efforts. Not only will you save time by auto-populating the information on an invoice, but it will also increase the accuracy of the provided information. Also, make an effort to issue your invoices immediately after delivering products or services. The more consistent you become when issuing an invoice to a buyer, the better your odds are of getting paid on time.
Maintain a Relationship With Your Buyer
Staying in constant contact with your buyer is essential to the working relationship. Not only can you uncover how they operate their business, but asking questions can help you get a sense of how they pay their bills. Being top of mind can increase your chances of getting paid on time and help you identify the appropriate contacts to reach out to if and when an invoice discrepancy arises.
Follow-up With Your Buyer
Lastly, follow-up with your buyer if you're beginning to notice invoices aging out past their payment date. If you're concerned about repeat offenders, consider following these three rules when contacting your buyer for payments:
(1) Notify your buyer that you're billing them when you initially issue an invoice
(2) Follow up a few days after the invoice delivery to confirm its receipt
(3) Reach out for payment status 2-3 days after the payment is due
Bypass Common Invoicing Hassles by Utilizing a Factor
Chasing payments and addressing invoice disputes can place a real strain on your business. Luckily, utilizing a factor like LSQ can help you save time and prevent potential headaches by providing the expertise needed to make your back-office processes more efficient. For over 20+ years, LSQ has helped businesses improve their cash flow and billing efforts by integrating back-office services with innovative accounts receivable-focused technology. While it’s still important to follow best practices when creating and issuing an invoice to your customer, invoice financing can ensure that it’s collected in a timely manner.