Invoicing is clearly a critical part of the bookkeeping paperwork. It is the source of all your sales and credit information, and has the advantage of being quick and simple to do. If you manage your invoices efficiently you should always be able to construct the debit side of your day books and ledgers correctly. Not only will your invoices record information on your sales, they will also record your VAT and your debtors.
Your invoices should give the following information: your business name, address, telephone number, and perhaps a web page or e-mail address as well. Also include your VAT registration number (if you have one) and, if you are a limited company, your company registration number. This can all be printed on the invoice.
Each separate invoice will have a reference number, unique to it, and the purchaser’s name and address. You may also need to note down a delivery address if this is different from the invoicing
address. Finally the invoice will need the date (of sale, if different from delivery) and the items purchased, with their net price, the total including VAT, and the VAT payable. (See Figure 9.1.) In today’s world of direct transfer from bank to bank, you may wish to include your bank details as well (sort code and account number) in the ‘Remittance Advice’ section of your invoice stationery.
Invoice
Bauhaus LtdThe Quadrangle 30 Newcombe St
London, NW3 8QT
VAT # 709 5632 65
Fosters Products Ltd 76 The Square Ascot
Berkshire, AS6 4RN Your Ref.:
Detailed Information
Charge Description Qty Unit Price Discount Net VAT Rate VAT
A4 Copier paper 6 2.50 15.00 17.5% 2.63
Coloured Files 10 1.99 19.90 17.5% 3.48
Totals 34.90 6.11
Summary Information Due Date 26/07/04 Customer # 80271 VAT #
Invoice # 765523 Bill Date 12/08/08 Page 1 of 1
Total (Ex-VAT) £34.90
Total VAT £6.11
Grand Total £41.01
REMITTANCE ADVICE
Customer #: 80271 Invoice #: 765523 Due Date: 26/08/08 Amount Due: £41.01
Bauhaus Ltd Please make cheques payable to “Bauhaus Ltd”
The Quadrangle Please write your invoice number on the back of
30 Newcombe St your cheque
London, NW3 8QT
All billing enquiries to our Accounts Dept 020-7633-2445.
Figure 9.1 Sample invoice
Each invoice ought to have a minimum of two but possibly three copies: one for the customer, one for the cash or sales day book, and a third for the customer ledger. If you are using a computerized system you will only need to print out the customer copy and one copy for yourself. If your hard drive is large enough to record all your sales without occasionally having to clear it out, you may not have to produce any hard copy for yourself, so long as you make sure you back up all your files regularly.
With this information you can fill in your sales day book (for non-cash sales) and keep track of your customers’ payments. You will also manage your VAT accounts from this information. Each month you should total up the different columns in the sales day book and see that the subsidiary columns (if you have split sales into different columns for analysis purposes), plus the VAT, balance your total gross revenue for that period.
At the end of each month you should see which of your customers have not paid their invoices. You should have made clear your standard payment terms – usually 30 days – either on the invoice or in discussion with them. If you have not received payment by this time, then you will need to chase them up. Two golden rules with credit control are: one, do not be embarrassed about chasing debt. It is why you are in business, and the customers must expect to pay for what they have bought. Two, the softly, softly approach will work much better than an aggressive one. Your customers most probably have not paid because they have other priorities; a gentle reminder will put you back near the top of their list. If they have difficulty paying, an aggressive approach is no more and probably less likely to work than a friendly one. If you create a rapport with their accounts department you are in a better position than if they immediately go on the defensive when they hear from you. If they are being wilfully unhelpful the Small Business Service and Small Claims Courts are able to help you – but this should be a last resort. A good timetable to go by for credit chasing is as follows:
Issue of invoice → statement of account two to three weeks later →a gentle telephone reminder after another two to three weeks to the accounts department (at this point you can try to find out if there is any problem brewing) →a polite letter indi- cating that three months have now passed since the invoice was issued, and prompt settlement is now required.
Only after this has failed is it worth considering legal action. But it is worth weighing the amount outstanding against the time, effort and expense of reclaiming it.
If customers habitually pay late (often large companies claim their settlement departments take two to three months to pay out), then you should discuss this with them if it causes you difficulty. If you are worried about any customers, then you should also suspend their credit facilities, with a clear explanation of why you are doing so. Discounts for prompt payments can help to speed the process up, and the lost revenue is often more than made up by reduced credit-chasing expenditure. Just be sure that the discounts are noted in the day books correctly.