Invoice Guide

1. Overview

Welcome to this comprehensive invoicing guide.

It is designed to help you understand the importance of implementing a robust billing process, the essential aspects of a good invoice, and how to utilise the right invoicing tool to create and manage your account receivables effectively.

1.1 The definition of invoice

As defined by Investopedia: “An invoice is a time-stamped commercial document that itemizes and records a transaction between a buyer and a seller. If goods or services were purchased on credit, the invoice usually specifies the terms of the deal and provides information on the available methods of payment”. Invoice is also commonly known as “bill”, “sales invoice” and “VAT invoice”.

1.2 Why does a business need invoice?

• Record keeping - it is a document that maintains the record of your business’s sales revenue.

• Tax purpose – it contains necessary information to identify your tax liability on the supply of goods or services. Note: tax rate is subject to the tax law of your local jurisdiction.

• Payment reminder – invoice also served as payment reminder, it clearly outlines the description, quantity and the price of the goods and services provided, and the agreed payment terms to remind the correspond client to settle the payment.

• Business intelligence – when an effective invoicing process is established, business owners can make informed business decisions by analysing data generated from the daily invoicing activities such as aged debtors report, project profitability, cash flow statement, revenue forecast, etc.

• Branding and marketing – a well-designed professional invoice and friction-free billing process give a good impression to client and increase brand awareness.

3. Invoice best practice

Invoice best practice refers to a set of guidelines on company’s billing procedures that is generally accepted within/in the industry and known to produce the desired outcome.

Businesses often fail to establish a robust billing process along with its growing operating activities due to lack of adoption of invoice best practices. For example, excessive manual process is prone to human input errors, failing to enforce a collection policy will lead to potential late payment and inadequate discount granted to customers may discourage early settlement; which all in turn will negatively impact your working capital/cash flow.

Business should consider the following best practices to ensure accuracy and timely invoicing.

• Automation - use an automated electronic billing system such as antbill online invoicing system to save time and reduce human error.

  • save and reuse company, client and product details to reduce manual data input

  • invoices can be generated and sent to client automatically

  • able to generate emails to clients, such as invoice notification email and payment reminder email

  • system generated billing reports facilities business decision

• Timely/effective invoice generation and reporting – invoices should be raised in a timely manner where possible.

• Enforce collection policies – take proactive approach on payment collection where you should

  • Agree payment terms with client in advance and stick to them

  • Periodic review on account receivables and take actions on potential late payments

  • Set clear procedures on dealing with overdue invoices

• Communicate efficiently – establish a communication channel with client and set expectations, communicate your billing policies with your client in advance, make sure to follow up on payment before invoices become overdue.

• Use KPIs – key performance indicators are great to evaluate how effective is your billing process. You will get a clear picture on the percentage of clients who pay late bad debt write-off, and the average number of days between receiving the payment and the issuance of the invoices. Commonly adopted account receivable KPIs includes:

  • Days Sales Outstanding (DSO)

  • Turnover Ratio

  • Collections effectiveness index (CEI)

  • Bad Debt to Sales Ratio

  • Number of revised invoices

4. Billing Process

A typical billing process involves two-way interaction between the service provider and the client, which can be summarized into four steps as below:

• Step 1: The service provider aggregates billing information and generates invoice data based on the client’s activity in the preceding month. See Figure 4.1 Invoicing Process Flow Chart

• Step 2: The service provider sends one invoice to each client by default unless requested otherwise

• Step 3: The client records the invoice data in their system and performs relevant internal processes e.g. reconciliation of the invoice received.

• Step 4: The invoiced payment amount is remitted to the service provider before due date stated on the invoice. The payment method is agreed in advance between the provider and the client

Figure 4.1 Invoicing Process Flow Chart