Page 85 - Accounting Best Practices

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Billing Best Practices
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The only complaint that arises from this approach is that customers can be
buried under quite a large pile of invoices. This can be ameliorated by clustering
all of the invoices in a single envelope, rather than sending a dozen separately
mailed invoices on the same day. Also, it may be prudent to cluster small-dollar
line items on the same invoice, since this will cut down on the number of invoices
issued, while not having a significant impact on the overall receivable balance if
these invoices are put on hold.
Cost: Installation time:

4–7 TRANSMIT TRANSACTIONS VIA ELECTRONIC
DATA INTERCHANGE
Sending an invoice to a customer requires some labor, cost, and time, but does
not guarantee that the invoice will be paid. For example, someone must print out
an invoice, separate the copy that goes to the customer, stuff it in an envelope and
mail it, which may then take several days to reach the customer, be routed through
its mailroom, reach the accounts payable department, and be entered into the cus-
tomer’s computer system (where the data may be scrambled due to keypunching
errors). The invoice may even be lost at the customer site and never be entered
into its computer system for payment at all.
To avoid all of these issues, a company can use electronic data interchange
(EDI). Under this approach, a company’s computer system automatically issues
an electronic invoice that is set up in a standard format (as defined by an interna-
tional standard-setting organization) and transmits it to a third-party mainframe
computer, where it is left in an electronic mailbox. The customer’s computer
automatically polls this mailbox several times a day and extracts the electronic
invoice format. Once received, the format is automatically translated into the
invoice format used by the recipient’s computer and stored in the accounting sys-
tem’s database for payment. At no time does anyone have to manually handle the
data, which eliminates the risk of lost or erroneous invoicing data. This is an
excellent approach for those companies that can afford to invest in setting up EDI
with their customers, since it fully automates a number of invoicing steps, result-
ing in a high degree of efficiency and reliability.
There are several problems with EDI that keep most smaller companies
from using it, especially if they have many low-volume customer accounts. The
main problem is that it takes some time and persuasion to get a customer to
agree to use EDI as the basis for receiving invoices. This may take several trips
to each customer, including time to send trial transmissions to the customer’s
computer to ensure that the system works properly. To do this with a large num-
ber of low-volume customers is not cost-effective, so the practice is generally
confined to companies with high-volume customers, involving a great many
invoices, so that the investment by both parties pays off fairly quickly. The