Money Money Money: 4 Strategies for Effective Invoicing
Getting a job done efficiently is crucial to the profitability of your firm. You hardly need reminding of that fact. You’re accountants.
On the other hand, if you don’t collect your fees for the job quickly, it won’t matter how efficiently you turn around a job.
This article is intended for those firms who work on the basis of invoicing the client after the job is completed. While from a cash flow perspective the ideal approach is to invoice and collect payment before commencing any work or rely on direct debit arrangements, most firms do not yet operate in this way.
In invoicing the client once the job is complete, the objective must be to:
– Have the invoice sent to the client as soon as possible after job completion (that same day, if possible); and
– Have the invoice paid by the client as soon as possible after it is sent.
The following factors can influence the efficiency of your invoicing process:
– The efficiency and effectiveness of your team’s time recording;
– How the invoicing task is assigned;
– How quickly invoices are initially sent; and
– How effectively unpaid invoices are followed up.
1. The efficiency and effectiveness of time recording
Make sure your staff provide sufficient detail on their timesheets and have the appropriate job codes available to reflect the various tasks they may undertake.
To send an invoice as soon as a job is completed, all time spent on the job must be up-to-date and accurately recorded. If not, you will lose time chasing up unrecorded time or clarifying how particular amounts of time were spent.
The more detail your staff provide around the actual work done, the less inclined you will be to write off any amounts.
2. How the invoicing task is assigned
This is a decision best left up to you given the nature and structure of your firm.
The top-performing firm we have profiled in a previous year of The Good, the Bad and the Ugly of the Australian Accounting Profession assigns this task to a designated administrative staff member. As you will read, their reasons for doing this are to:
– Streamline the invoicing process and assign clear responsibilities to this task; and
– Remove the (potentially contentious) matter of invoicing and any follow up of unpaid invoicing from the client relationship itself.
However, other top-performing firms we have profiled have preferred to assign invoicing responsibilities (at least the initial invoicing) to the relevant client manager.
At the end of the day, the key aim should be to have the most efficient process in place for executing this particular task, regardless of what form this process takes.
3. How quickly invoices are initially sent
You should be aiming to send the invoice as soon as the job is complete – which means the same day, if possible. After all, a delay in sending the invoice will automatically translate into a delay in receiving payment, which will have an adverse effect on cash flow.
Invoicing on completion will have a positive impact on cash flow for two reasons:
– Firstly, the client can see that the invoice relates to the particular job presented; and
– Secondly, the fee can generally be reconciled to the relevant job when both are presented at the same time.
Compare this to the situation in which an invoice that arrives weeks after the job has been completed: because the perception of value delivered declines over time, the invoice will undoubtedly encounter greater scrutiny from the client.
For larger jobs, interim billing at predetermined points (generally time based) will lower the overall burden of the account on the client and facilitate progressive payment. You will also bring the cash flow forward as clients should start making payments before the job is completed.
4. How effectively unpaid invoices are followed up
Like the assigning of the invoicing task, there is no one rule for how invoices should be followed up and who exactly should follow them up.
What is fundamental, however, is having a defined process for following up unpaid invoices as well as a clear delegation of responsibilities. Firm leaders need to monitor the payment of invoices and ‘step in’ to sort out any issues as they arise.
Effective invoicing is one of the most significant factors in getting paid – and not just getting paid ‘eventually’. The next time your debtors seem to be piling up, take a look at your invoicing process. Chances are, it could do with a little tidy-up.