Billing Best Practices (#73)
/In this podcast episode, we discuss the various best practices that can be applied to the billing process to make it more effective. Key points made are noted below.
The subject, specifically, is how to create and issue a customer invoice. Now, this seems pretty simple. Your accounting software has a standard invoice template, so you call up the pre-defined customer billing information, enter the various line items you’re billing, and put the invoice in the mail.
How to Find Invoicing Problems
You may have noticed during collection calls that customers are not always paying late because they don’t have the money, but instead because of something wrong with the way you created or delivered the invoice. In other words, collection calls are a really good way to figure out where your billing process is broken. So let’s go through some of those collection problems and see how we can fix the billing process so that the collection issues go away.
Issue Single-Line Invoices
One of the problems is that a customer won’t pay because it’s protesting one line item on the invoice. If there are lots of line items, that means all of the other items are being held up too. If there’s a history of this, and if the other line items are for really large amounts, it might make sense to split up a large invoice into several smaller ones. In particular, if you think there might be some debate over a particular line item, then put it in a separate invoice. Obviously this can be outrageously laborious if you deal with all kinds of line items, so reserve it just for the really large-dollar invoices.
Proof Large-Dollar Invoices
And speaking of large-dollar invoices, if there’s a risk that a customer won’t pay a really big invoice because of a typo, then by all means – hand over the larger invoices to a second person, along with all of the supporting documents, and have them proofread the invoice. Sure, it might delay invoice delivery by a day, but so what? Proofreading could keep a payment from being delayed a really long time. Of course, this won’t work if you have thousands of small invoices, but if a really big one comes along, just be extra careful.
Clearly Present the Invoice Number
Another problem you find is that the customer keeps mixing up invoices. This happens when you don’t clearly state an invoice number, or you don’t show any invoice number at all. The customer expects an invoice number, and he’s looking for one, so clearly position it in one corner of the invoice, put a box around it, and print it in large font and bold. This sounds stupid, but I think some companies make a game out of how far inside an invoice they can bury the invoice number. So… take one of your invoices out, and stare at it from the perspective of the customer. If they have to dig around for key information, then you need to remodel the invoice. This is your problem, not theirs.
Clearly Present Contact Information
So what if, despite your best efforts at creating a clear invoice, the customer still has a question. Does the invoice clearly show a contact phone number? And does someone actually answer that phone number? This cannot go into the department voice mail. Nobody checks that voice mail. You have to make sure that the contact number goes to a real live person. If not, then the customer will just say “screw it,” stick the invoice in their IN box, and wait until the invoice is past due, so that someone in your collections department calls them. This is not the customer’s fault, it’s your fault. You are not giving them a clear way to communicate with you.
Identify the Recipient
Another problem is the invoices that never find their way to the right person. Invoices have a way of vanishing inside customer organizations, and you never know until they go unpaid, and your collections person finds out that no one ever received it. There are a couple of ways around this. First, if you have a sales staff that keeps in close touch with customers, then periodically run your active customer list past the salespeople to see if any contacts have changed. Also, the collections staff should have a pretty good idea if someone has left a customer’s accounting department, so run the list past them, too.
Another option is to mark all envelopes with an “Address Correction Requested” stamp, so that the Post Office notifies you whenever a customer changes its location.
Accelerate the Issuance of Invoices
So what about the timing of sending an invoice. The standard view, of course, is to mail it as soon as possible after you’ve delivered the goods or service. I certainly agree with that. But – if you know in advance exactly how much to bill, you can run the invoices early and mail them early. As long as you also set the invoice date to the correct date that coincides with delivery, there’s really no accounting problem. By issuing invoices early, you’re giving customers more time to process them for payment, so you should get paid a little sooner. This doesn’t work for every kind of sale, but keep it in mind.
Consider the Invoice Delivery Method
So what about invoice delivery. The traditional method, of course, is mailing every invoice. But there are better ways. Some companies have set up on-line billing sites on the Internet, and ask you to re-enter invoices into those sites. If so, by all means take them up on it! Sure, it’s painfully slow and requires extra staff time. But on the other hand, you’ll know for a fact that the invoice is in the customer’s accounting system, because that Internet site usually has an automated feed that goes directly into the customer’s accounting system. And sometimes, you can even use the site to track payment progress. So, what’s not to like?
Now, what about e-mailing an invoice? I think it’s one of the best collection techniques once something is overdue. But as the way to initially send an invoice, I’ve had an amazing amount of trouble with it. Customers usually want you to send invoices to a generic e-mail address, and then they don’t check the mailbox. And also, you never know when the customer’s spam filter is blocking your e-mail. In short, it seems like a good idea, but e-mail is just not a good way to initially deliver an invoice.
And then there’s the wave approach to invoicing, which means that you hit them with multiple copies of the same invoice from all possible directions, like the mail, and fax, and e-mail, and an overnight delivery service. This really pisses off customers, but if you have someone who finds any possible excuse not to pay, then this takes away an excuse – because there’s no way they didn’t receive the invoice. I don’t use it much; this is really just for the most annoying customers.