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Can you invoice your business to extinction?

Kim Radok11 June 2019

Can you raise so many invoices that it leads to the extinction of your business? The answer is yes and there are plenty of examples in history to prove this does happen. Many readers may therefore ask the question; “How can this be so because raising invoices must be a good thing as it indicates you are selling, doesn’t it?”

The answer to above question lies in the well-known historical statement “A sale is not a sale until the money is in the bank.” In today’s business world you also need to realise that the modern version of this saying is; “A sale is not a sale until the money has been in your bank account six months and one day after receipt.”

You would also be wise to understand; an invoice only represents a transfer of product or supply of a service by one party to another at an agreed value. The invoice does not end up as a sale until the agreed value of money is in the supplier’s bank account. Even then, if the money is not received within terms or further expense is incurred to obtain that money, then the sale may not be profitable.

When a business raises too many invoices which will not be paid or are paid late, they usually run out of money. As every businessperson can testify, you cannot run a business for too long without money.

One of the key aspects all businesspeople come to understand one way or another, raising an invoice does not always lead to profitable cashflow outcomes. In fact, raising certain types of invoices can lead to increased liabilities and loss of customers.

In brief, invoices which cause extra liabilities, losses, bad debts and lost customers include those raised:

  1. without an agreed trading or credit arrangement;

  2. without sufficient details to warrant prompt payment or payment within agreed terms of trade;

  3. with incorrect or incomplete information causing customer complaints and enquiries;

  4. to a customer for which you do not have the resources or expertise to deal with adequately;

  5. by salespeople to achieve budgets which are basically invalid and which in turn, disenfranchise customers;

  6. fraudulently by salespeople;

  7. for bad or slow paying customers.

To raise invoices correctly therefore, you need a process which helps ensure all invoices are raised with the following objectives in mind:

  1. correctly in every detail;

  2. for the right reasons;

  3. for those customers which will pay your invoices within agreed terms.

Failure to adhere to these three objectives may well mean you raise too many invoices, which leads to the demise of your business, because you run out of cash.

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