Billing and Collection are very important in putting up a business. Business industry set proper billing and collection system for an effective business operation. Because companies earn income from business operations. Regardless of what mode of payment the customer makes. Whether the customer pays cash, credit, or terms. Companies need a billing and collection system to track their numbers. Like what promo sale has the highest track record. Moreover, what credit terms give the highest income and expense. The computation of installment payments and charges. And how to collect them later on.
Billing
Invoicing or Billing – the process of creating a statement stating the amount, customer, and the due date. Then send it to the recipient which is the customer. Billing is the other term for invoicing. Which means the process of sending invoices to the customers. An invoice should have Seller and Buyer’s details, issue date, due date, and invoice reference number. As well as, payment method, the product or services provided, and the total amount including taxes. Billing is recorded in the book as collectibles. Collectibles are classified based on maturity and rates
Common Billing Problems
1.) Incorrect Billing Information
Incorrect billing information – billing information such as name, address, and contact number. This is common, especially to traditional billing. Because the vendor needs to create invoices again and again. Repeated creation of invoices is prone to typo errors and wrong information. Good thing an automated system is created to avoid this problem. There is a lot of system software nowadays that has auto-fill features. What auto-fill does in creating invoices is that it automatically fills the customer’s information? Creating invoices is simply selecting the customer’s name in the system and the information will be filled in. Not only result in precise billing information but also a fast recording of transactions.
2.) Different Discounts
Different Discounts – some customers demand an increase in discounts, especially on wholesale purchases. As a result, the vendor has to create different terms and discounts that suit each customer. The problem is that discounts per item differ, Moreover, discounts per customer. When it comes to billing, the discount per item is entered separately. Furthermore, the vendor has to create schedules for monitoring and as a guide in billing the customers. The computations as a whole complicate the billing process.
There are system software applications that give solutions to this problem. This application has features where you can filter transactions. For instance, filtering transactions that have the same discounts. This serves as a guide in billing. Moreover, you could also run reports of all the customers that have specific discounts. Otherwise, you can use the system software applications that have a copy feature. With this, the information is copied including the discounts given. All you have to do is change the quantity create, save and send.
3.) Failure to send Billing
Failure to send billing – this applies to recurring transactions like subscriptions. It happens, especially to regular customers with monthly billing. The recurring transactions are recorded to the book but the billing was not sent. To avoid it, there must be a reminder date set or schedules of due dates. A lot of accounting software applications that has to save and send features. What it does when creating a billing is it gives an option to save and send or to just save the record. This prevents the failure to send a billing to the customer.
This is a sample of the invoice. Image reference is from MS Excel free templates. To view Microsoft Excel free templates, go to the desktop search bar. Then type MS Excel then select excel. After that, Microsoft will show excel suggested searches. Hover over the search for online templates bar. Lastly, type the invoice and enter. It will show free downloadable Invoice templates where you can choose your choice.
Collections
Collections – It follows after billing the customer. These are the paid accounts receivables. The collection comes from the sale of goods or services with terms. The collection is recorded as a decrease in collectibles. Once you get paid, your collectibles decrease.
Usual Collection Problems
1.) Debtor Refuses to Pay
Debtor refuses to pay – it usually happens when customers aren’t satisfied with the goods or services provided. The vendor should have a follow-up or feedback from the customer after the sale or service. Follow-ups and feedback also help the vendor to assess other customer needs that will lead to upsell. It is also one way of marketing. This will also give an idea if a customer is a good debtor. Another reason why customers refuse to pay is due to habit. There are customers that have a habit of not wanting to pay their bills even if they are capable. To avoid these customers, there should be a proper credit investigation. If a customer has bad records but with high cash flow is an indication. Vendors should always KYC or know your customer especially when big-ticket accounts. Constant follow-up also helps convince debtors to pay.
2.) Outdated Aging of Accounts
It is due to the pending transaction record. It occurs when the company is changing system software for example. Data migration will be the priority. There is a likelihood of pending on recording of transactions so as the aging of accounts. Usually, the company sets contingency plans like manual recording and updating schedules. It is helpful if company manpower is knowledgeable on automation and manual to prevent this problem.
3.) Duplicate Transactions
This happens to similar transactions. Moreover, lack of coordination. For instance, the owner entered the transactions and the bookkeeper entered transactions at the same time. The same transaction is entered into the book on the same day. To prevent this from happening, there should be a reconciliation of accounts weekly or monthly.
4.) Unallocated Accounts
Occurs on bad debts accounts or doubtful accounts. Moreover, when the customer is relocated and not responding. It is important for the vendor to call or visit accounts when projected doubtful accounts. So that the vendor can update customer information before it becomes bad debts.
5.) Loss on Sale
When an account became doubtful, the company sets an allowance for bad debts. Setting an allowance for bad debts is an expense to the company. Usually, a company recognizes bad debts when the customer declares bankruptcy. It is bad debt to the company because it can no longer collect the bankrupt customer. The remedy company usually do is they pay insurances for their collectibles as a part of contingencies. By doing this, they can at least recover or collect through the insurance company.
Conclusion:
The company should always establish a billing and collection contingency plan to prevent loss. These are the automation and manual operation training. Moreover, paying insurances for collectibles. It is also necessary to monitor accounts especially the possible doubtful accounts. There should also be counter-checking of the billing and collection system to prevent incorrect and duplicate transactions. Also to prevent overstatement and understatement of accounts. Furthermore, proper credit investigation and KYC or know your customer procedure. Knowing the customer’s current status will give an assessment. Assessment for the possibility of becoming a doubtful account. It could also add more sales. The more you know your customer, the more upsells.
Related blog: Bookkeeping Services
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