Why some sales invoices NEED to be paid before the customer receives their product or service?
It is tempting to get the customer to feel happy and get that work done or product sent out BEFORE the invoicing is done but this is not always appropriate.
Some products – such as concrete can not be re-sold to another customer if the intended one decides not to pay…it’s not possible to collect it or accept a return. If the customer decides to not pay in this situation, your business will definitely be out of pocket and the risk lies with you.
Gates or furniture made to exact specifications can not always be re-sold to another customer as they are too bespoke to simply be re-packaged.
There is also the question of cashflow – if your business has to purchase materials in advance, it can be too much pressure on cashflow if the customer pays at the end of the task. It can be important to send invoices for stage payments. That way the customer pays in advance for materials bought in. This again is about keeping risks under control – you don’t want your business to have to declare bankruptcy when the suppliers come looking for a payment that you can not settle.
With regards to bookkeeping we are in a similar situation, we can not take our time back and so we are moving towards billing at the start of the month like the phone and utility companies do. This means if necessary, money can be returned to the client however time can never be given back so it is a better fit for our business t be paid at the start of each month.
If you feel it is important to offer credit terms to customers, it can be beneficial to make sure you have a clear credit policy in place. When do you expect payment and which types of payments do you accept – make a note of these on your credit sales invoices for everyone to see. You could run credit checks on new customers to add peace of mind to the process, as it is important to keep your risks under control.
If you need help to get those invoices out to customers, to keep the cashflow under control, give BW Bookkeeping a call to see if we are a good fit to work together.
