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Accounts Receivable Invoicing Errors

Accounts Receivable Invoicing

Bad Debt Prevention Part 2

Benjamin Franklin - An ounce of prevention quote


Accounts Receivable Invoicing is step 2 in a 3 step path to payment. 

  1. Make a sale
  2. Create and send an invoice
  3. Collect payment for the invoice 

When all goes well, it’s a simple and elegant process leading to prompt payment, positive cash flow, and profitability.  

Unfortunately, the number of ways we manage to screw up invoices seems to be almost limitless. (Okay I’m exaggerating for effect) But the fact remains that a mistake on an invoice will delay payment and create unnecessary collection work.  

Oops! Warning Sign

Common Invoicing Errors

Late Invoices

If you want to be paid promptly, send your invoice promptly. Ideally, you’ll send it within a day or two of providing your service or shipping your product. Some customers may take late invoicing as an invitation to pay late.

Back-Dating

In other words, waiting too long to send the invoice and using the date of service as the invoice date in hopes of getting paid faster. It won’t work, and you’ll annoy the accounts payable department.

Distribution Errors

  • Not sending the invoice at all (happens more than you would imagine).
  • Sending the invoice to the wrong department (usually purchasing instead of accounts payable).
  • Using an incorrect address or email address – (again preventable if you insist on a complete credit application).
  • Not following vendor instructions (read the vendor instructions, they’re annoying, but if you want to get paid quickly, you’ve got to play by the rules.
  • Mail only or email only – again read the vendor instructions or ask your accounts payable contact how they want invoices delivered, then do it!

Invoice Identification Errors

  • No invoice number – you’ve got to use invoice numbers, so your customers have a way to enter and locate your invoice.
  • Duplicate invoice numbers – I’ve never seen an accounting system that will accept a duplicate invoice number.
  • Difficult Invoice Numbers – 
    • Too long
    • Using the date only 
    • Too many leading zeros (or really, too many 0’s in a row anywhere in the invoice will lead to data entry errors.

No Terms

Payment terms specify the amount of time you’ll give your buyer to pay an invoice and should be clearly stated in your company’s credit policy. Consider industry standards, your customer’s credit history, and your companies cash flow needs when deciding.

Our Recommendations

Avoid the temptation to list “Due upon receipt” unless you require payment in front before shipping or providing service. Due upon receipt is an invitation for your customer to decide for themselves what the terms will be. Larger companies may set their own terms anyway, but generally speaking, it is the seller’s prerogative to set them.

Smaller service companies should consider shorter terms, we usually suggest net 10 or net 15. We’ve found the further your customer gets from the service provided, the less important paying the balance becomes.

Typical Terms

Some of the more commonly used terms are;

  • COD (or cash on delivery)
  • Net 10 (due ten days after receipt of goods or service)
  • Net 30 (due 30 days after receipt of goods or service)

For an exhaustive list of terms and their definitions, check out this article.

https://www.nibusinessinfo.co.uk/content/payment-terms-commonly-used-invoice-payment-terms-and-their-meanings

Purchase Order Errors

  • No PO listed on the invoice (if your customer uses Purchase Orders, they’ll want to see the PO number on the invoice; if it’s not there, you won’t get paid.
  • Wrong PO listed on the invoice
  • PO doesn’t match the invoice

Information Errors

  • No information
  • Partial information
  • Wrong information

Any Purchase Order (PO) error is going to hold up payment. Generally speaking, don’t assume your customer “knows” or “remembers” anything. Include as much accurate information on your invoice as is reasonably possible.  The fewer errors on your invoices the less time you’ll spend on the back end correcting and collecting.

Late Fees

Our friends over at The Kaplan Group recommend putting this statement on every invoice “Accounts not paid within terms are subject to a _% monthly finance charge.”

We agree with one proviso; don’t automatically calculate late fees, it may work well for a large business with plentiful resources, but for a small business, you’ll create an accounting nightmare that, in my view, isn’t worth it. More often than not, customers don’t pay them, and you’re stuck having to write them off.

However, should you ever land in court with your customer, without the statement, or one like it on the invoice, the judge is unlikely to award late fees.

For more information on Small Claims errors, check out our ebook “Small Claims Big Mistakes.” It’s in the Resources section of our website. We aren’t attorneys, so we can’t give legal advice, but we can share our experience with you – check it out.

FreshBooks Invoice Templates

Sample invoice from FreshBooks

This article was written in November of 2018 and updated May 14th 2020

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