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Dear Dr. Credit,
We’re about to look carefully at our invoicing procedures. Can you offer a checklist of things to look at when we do this?
–Cumbersome in Baton Rouge
Dear Cumbersome,
Sometimes, the basics are the most overlooked in credit. Proper invoicing is one of the most critical components for the effective collection of A/R. We just so happened to have received a great checklist from Kay Laffoon, principal of Laffoon & Associates, Inc. (www.CollectionConsulting.com) Here is Kay’s list of invoice "must-haves."
The customer reads from the upper left corner to the bottom right. Here are the basic elements that should be used:
- INVOICE in bold letters in the upper left part of the document
- Due date of invoice & terms
- Name of customer and billing address
- Your company name, address, phone number
- Invoice date and number
- Customer PO #
- Description of material and amounts
- The amount owed in the bottom right in bold letters
- Due-date in the bottom right in bold letters
- Mail-to address in the bottom right in bold letters
- Phone number of your company and a contact person for questions in the bottom right.
Says Kay, "Many companies do not mail payment promptly as they find the invoice too complicated and difficult to pay. Redesigning your invoice can increase your cash flow tremendously!"
Holes in Your Operations
The Doctor recently spoke with a credit exec with a long and successful track record. But one thing he told me really shocked me. You see, he uses an export liaison to handle all export sales of his company. But in the eight years, he’s been at the company, he’s never conducted a credit check of the account.
 Many companies do not mail payment promptly as they find the invoice too complicated and difficult to pay. Redesigning your invoice can increase your cash flow tremendously! -Kay Laffoon
When I asked about the account, he said, "They were the export liaison when I got here eight years ago, so I’ve never done a detailed check. But I know they’re good. I know the two people who run the business. I’ve seen references on them from members of our industry group, and they were good." But knowing the payment record is not enough. This credit exec had no idea if the account was highly leveraged, if it had all of its assets secured by a secured lender, or if it had a suit or lien filed against it.
Here are some ways that you could be lulled into thinking that everything is OK:
- You have known the principles of an account for many years.
- You’ve had a great payment record for many years.
- You have seen good references from others in your industry group, showing that an account is "good."
But really, those three are not enough when your exposure is high. And they’re particularly not enough if you’re talking about a business that primarily exports.
You need more information, and you can’t get it any other way than a credit report or financial statement, preferably both. It’s cheap insurance. If the balance is enough that you’d be hurting if the account stiffed you, it’s foolish to go unprotected! In fact, you’re not doing what you’ve been charged to do.
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