In order to minimize the risk of bad debts and late payments, it is necessary to take care of the drafting of invoices.
They materialize the contract between a supplier and a buyer and involve reciprocal commitments:
- For the supplier to deliver goods to a specified date and with a given price.
- For the buyer to pay the price at a specific maturity date.
The stakes of a good billingThe invoice must be the exact reflect of the commercial negotiations and in perfect consistency with the general sales conditions. Any discrepancies may generate a late payment and a deterioration of the relationship with your customer.
The invoice must follow some legal obligations otherwise wrongdoing businesses risk high financial penalties.
The bill must meet with three conditions to be recoverable. It is under seller’s responsibility to prove these three conditions in case of dispute:
- The claim must be certain: it is having an actual existence indisputable and therefore correspond to a supply of goods and / or services,
- The claim must be liquid: the amount must be determined in money. The details of this amount must be specified on the invoice,
- The debt must be due, ie expired.
- Purchase Order,
- Delivery note,
- Report of of recipe,
Invoices must be retained for 10 years in many countries. Beware tax audit!
You may display on your bills penalties rate for late payment (mandatory is some countries like in Europe) which will be due the day after the due date of your invoice. This rate should be setup between 12% and 15%.
The due dateThe due date must imperatively appear on your bills.
The collection is based around this date which must be conformed to the payment term negotiated with your client.
The calculation of the due date is based on of date of issuance of invoice plus the payment term period.
Prescription of invoicesThe prescription is a mode of extinguishing obligations of the buyer at the end of a certain time. To be recovered, the bill should not be prescribed, ie not older than X years (depending on the country). If this is the case, the buyer may invoke this provision to oppose the final payment.
The chances of recovering a bill strongly decrease gradually as time passes, whatever the reason for non-payment. At 6 months of delays, the energy expended to collect a bill is very high and inversely proportional to the chances of success drop to only 20%.
The most common disputes
- Difference between the price on the invoice and the price negotiated.
- Issue of invoice before delivery or a long time after. The invoice shall be issued upon achievement of the sale.
- Disagreement about invoice due date.
- Error in wording of the bill. Be careful to send your invoice to the exact business name of your client and to the right place.
- Wrong or missing order number indicated on your invoice.
- VAT invoice included in the price when the invoice is exempt from VAT.
Invoicing right the first time is essential!
Not yet registered? The subscription allows downloading and unlimited use of all files of Credit Management tools.
All news about collection and credit management
Happy New Year with Credit Management tools!
Which credit management organization in SMEs?
New tutorial about collection efficiency rate
How to manage customer risk with My DSO Manager?
Vote for the start-up of the year!
Words of experts
Find the latest articles of collections and credit management specialists
How to rejuvenate your aging balance?
Why should you use a cash collection software?
Why should you chase your customers before the due date of your invoices?
Find Credit Management tools on your favorite social networks