Accounts Receivable Invoicing Errors

Accounts Receivable Invoicing Errors

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. Step One – Sell Something
  2. Step Two – Create and Send an Invoice
  3. Step Three – 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 processing and create unnecessary collection work.  In this article we discuss the 12 avoidable invoicing errors that will almost always delay payment.

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12 Avoidable but Common Invoicing Errors

Invoicing Late

If you want to be paid promptly, send your invoice promptly. Ideally, within a day or two of providing your service or shipping your product. Delayed billing annoys customers – to ensure a positive customer experience from start to finish – do everything on time, including sending the invoice. Unfortunately, some customers will interpret late invoicing as an invitation to pay outstanding invoices late and that is not what we’re trying to accomplish.

If invoice generation is an issue, here is a free invoice generator you can try. It is aptly called Invoicy – I haven’t tried it, but if I didn’t have software that generates invoices, I would.

Back-Dating Time is Money

The practice of back-dating a late invoice sometimes results in the invoicing showing up late the first time your customer sees it. In other words, it’s already late when he/she receives it. That would tick anyone off.

Waiting too long to send the invoice and then using the date of service as the invoice date and calling it late in hopes of getting paid faster just doesn’t work. You’ll annoy your customer without an offsetting benefit.

To avoid late payments send the invoice on time with the correct invoice date. The invoice date should be the date you create and send the invoice. The date you provided the service or shipped the product belongs in the body of the invoice with the rest of the invoice information.

Mailman & MailboxDistribution Errors

Distribution errors are not only one of the most common mistakes we see but are also the best way to delay incoming payments. If the finance team doesn’t see the invoice you aren’t going to get paid. Your receivable process needs to include safeguards to avoid these common 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 customer information)
  • 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 accounts payable instructions or ask your accounts payable contact how they want invoices delivered, then do it!

Invoice Identification Errors

When I originally wrote this article receivable management software wasn’t as common or as sophisticated as it is now, so for most of you this should not be an issue – on the other hand I still see it – a lot.

  • No invoice number – You’ve got to use invoice numbers, so your customer has a way to enter and locate your invoice and to enable account reconciliation if payment disputes arise.
  • Duplicate invoice numbers – I’ve never seen an accounting system that will allow entry of a duplicate invoice number. If you can’t get your invoice entered it won’t be paid.
  • 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.

Unfortunately receivable automation doesn’t automatically solve this problem, if you can avoid it don’t let your software choose your invoice numbering system. Choose it yourself, be consistent and make it as simple as you possibly can.

20% of vendors have missing information Missing or Incorrect Vendor Information

If the vendor information on the invoice is missing or incorrect the vendor i.e. you are not going to be paid on time.

If your remit to changes update it on the invoice and send several notifications, ideally by email and regular mail providing the new and correct remit to address.

There is nothing more frustrating on both sides than having to deal with “the check is in the mail” scenarios – only to find that it is, in fact, in the mail and has been for several weeks. Checks lost in the mail means stop-payments, which are annoying, time-consuming and expensive, often resulting in invoices being paid weeks after their due date.

Bottom line – when it’s preventable – prevent it!

No Terms 2% 10 Net 30

Payment terms specify payment due dates meaning the amount of time you’ll give your buyer to pay an invoice and should be clearly stated on your invoice, and in your company’s accounts receivable policy or credit manual. Consider industry standards, your customer’s credit history, and your companies cash flow needs when deciding what kind of terms you’ll offer.

Happy Thumbs UpOur 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 7, 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

Limited Payment Options Payment Options

I suppose technically this isn’t an error. But since we’re talking about avoiding collections and getting paid faster I think it’s worth mentioning. The easier you make it for the customer to pay you the faster you are likely to get paid. Offer as many payment options as possible, including credit cards, ACH, PayPal, even paper checks (yes that is still a thing).

Purchase Order Check ListPurchase Order Errors

Any Purchase Order (PO) error is going to create payment delays. To avoid receivable management problems you’ve got to get the PO right. Here are some of the possible 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 (same as above, it your customer uses PO’s and you put the wrong number you won’t get paid.
  • PO doesn’t match the invoice (this includes quantity, price and items ordered)

Information Errors

Information errors on your invoices seriously damage customer satisfaction and trust as well as causing receivable problems. Any information or description error may cause disputes and disputes hold up payment. Information errors include:

  • No information (failing to list what was sold)
  • Missing or incorrect line items
  • Wrong tax information
  • Partial information – most customers want a breakdown of items received or service provided
  • Wrong information of any kind

Late FeesLate Fee Question Mark

Again including or not including late fees isn’t really an invoicing error. But it’s worth mentioning in any discussion of how to invoice properly.

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.” The percentage would depend on your local regulations.

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 less likely to award late fees. For more information on small claims errors, check out our e-book “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.

Summary

We’ve identified the 10 most common preventable invoicing errors we see when collecting past-due invoices. The key word there being “preventable”. To avoid collection and other receivable problems – get the invoice right! Automation doesn’t solve this problem – attention does.

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