Page 84 - Accounting Best Practices

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4–6 Print Separate Invoices for Each Line Item
low and dollar volumes are high. If a billing is for a large amount of money, it
makes little sense to wait until the end of the month to issue an invoice, since this
only delays the time period before the customer will pay for it. Another issue is
that the existing accounting software may not support this feature. If not, a com-
pany must go through the added expense of custom-programming to group a
series of shipments or sales into a single invoice. Another problem may be cus-
tomers—they are accustomed to receiving a single invoice for each shipment, with
a separate purchase order authorizing each invoice, and they will not know what to
do when a single, summary-level invoice arrives in the mail. The best way to
resolve this problem is to make it an option for customers to accept summary-level
invoices, rather than unexpectedly springing it on them with no warning and
requiring their use of it. By taking the time to explain the reason for the single
invoice and how it can benefit customers, too (with less paperwork for them to sort
through), the customer acceptance rate should be quite high. The final problem
with this method is that it takes longer to bring cash in to pay for shipped goods,
since some shipments may be sent out at the beginning of a month, but not billed
until the end of the month. To avoid this problem, a company can impose a shorter
due date in which customers must pay, but customers rarely receive this well.
Instead, it is best to carefully analyze the interest cost of the large amount of com-
mitted working capital to the reduced cost of invoicing; if there is a clear benefit
despite the added cost, then this best practice should be implemented. For many
billing departments, it should be implemented sooner rather than later.
In short, issuing a single invoice to customers each period makes a great deal
of sense for those companies that ship many small-dollar orders. Companies that
deal with large-dollar orders should probably leave this best practice alone, since
there is an added working capital cost associated with its use.
Cost: Installation time:

4–6 PRINT SEPARATE INVOICES FOR EACH LINE ITEM

When an accounting department issues an invoice that contains a large number of
line items, it is more likely that the recipient will have an issue with one or more
of the line items, and will hold payment on the entire invoice while those line
items are resolved. Though this may not be a significant issue when an invoice is
relatively small, it is a large issue indeed when the invoice has a large dollar total,
and holding the entire invoice will have a serious impact on the amount of
accounts receivable outstanding.
One way to avoid this problem is to split large invoices into separate ones,
with each invoice containing just one line item. By doing so, it is more likely that
some invoices will be paid at once, while other ones for which there are issues
will be delayed. This can have a significant positive impact on a company’s
investment in accounts receivable.