Page 80 - Accounting Best Practices

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4–3 Do Early Billing of Recurring Invoices
at the time of shipment. In addition, a customer may not allow delivery personnel to
have access to the accounting department, resulting in the delivery of the invoice to
the customer’s front desk, which may result in a delayed or incorrect delivery to the
accounting department. Finally, there may be a problem with creating invoices
slightly in advance of shipment—what if the invoice is created but the shipment
never leaves the dock? The invoice must then be credited out of the computer sys-
tem, which adds an unneeded step to the invoicing process. Consequently, given
the number of problems with this best practice, it is best used in only a few situa-
tions, where a company has its own delivery staff and the accounting department
can efficiently produce accurate invoices either in advance of, or at the time of,
shipment.
Though there seem to be many obstacles to this best practice, there is one
scenario under which it can work very well. If the shipping dock has a computer
terminal and printer, it may be possible to create an invoice at the dock as soon as
a delivery is ready for shipment. This alternative keeps the accounting staff from
having to be involved in the invoicing process at all and keeps invoices from being
produced by mistake when a delivery is not actually ready for shipment. This alter-
native requires a modification to the accounting system, so that invoices can be
produced singly, rather than in batches, which is the customary mode of invoice
creation. The shipping staff also must be given permission to create invoices in
the computer system, and must be thoroughly trained in how to do so. If these
problems can be overcome, an incremental increase in the level of technology
used at the shipping dock can make this best practice a viable alternative.

Cost: Installation time:

4–3 DO EARLY BILLING OF RECURRING
INVOICES
There are many situations in which a company knows the exact amount of a cus-
tomer billing well before the date on which the invoice is to be sent. For example,
a subscription is for the preset amount, as is a contractual obligation, such as a
rent payment. In these cases, it makes sense to create the invoice and deliver it to
the customer one or two weeks in advance of the date when it is actually due. By
doing so, the invoice has more time to be routed through the receiving organiza-
tion, passing through the mailroom, accounting staff, authorized signatory, and
back to the accounts payable staff for payment. This makes it much more likely
that the invoice will be paid on time, which improves cash flow and reduces a
company’s investment in accounts receivable.
The main difficulty with advance billings is that the date of the invoice
should be shifted forward to the accounting period in which the invoice is sup-
posed to be billed. Otherwise, the revenue will be recognized too early, which
distorts the financial statements. Shifting the accounting period forward is not