INVOICES FOR CASHFLOW OR INVOICES FOR LIABILITIES?
There still seems to be the mistaken belief in the business community; every invoice sent to your customer, automatically indicates a sale has taken place.
This notion about an invoice equalling a sale is first and foremost, an accounting concept. Unfortunately it is not always a commercial reality. The fact is; raising an invoice only indicates a business transaction has taken place. Often for instance, the raising of an invoice is an indication of a successful fraud rather than a valid sale.
Ultimately, a sale only takes place when the invoice is paid and the cash is in your bank account.
In the modern world how can we align the accounting concept with the commercial reality?
We can only achieve the objective of making every invoice a sale by the adherence to the rules of due diligence before the sale. Due diligence means that you have a sales process suitable for your business, and the appropriate risk management rules have been applied to every sale and every customer.
How realistic is the object of making every invoice a sale?
Even in the perfect world, it would be nearly impossible to achieve a 100 per cent target. There are many factors which can affect the payment after the sale has been properly processed whilst adhering to the best guidelines and business disciplines. Events such as unforseen climatic events, social upheavals, economic problems, illness, marriage disputes, mental breakdowns etc. may all lead to the loss of a sale through nobody's particular fault or mismanagement.
In today's imperfect world of commercial reality, it is even harder to achieve the 100 per cent target. Notwithstanding this state of affairs, every effort must be made to get as close as possible to this target figure. The open slather and bland acceptance to extending credit of yesteryear, are no longer commercially applicable or viable.
What can you do to improve your chances of making the highest possible percentage of invoices to sales ratio possible?
Briefly, the following factors need to be identified and completed as applicable for your business.
1 Help your salespeople to understand how to sell the payment as well as the goods and services (refer to the Associates Blog titled "Sell the payment when you sell the product or service).
2 Make sure you obtain all critical information where the customer authorises the sale, you send the invoice to the right person - at the right place - with all the correct information.
3 Take a customer service approach to all invoice enquiries and complete within these enquiries within 24 hours, if possible. At the very least, acknowledge the receipt of the enquiry.
4 Contact the customer within three working days if the payment is not received the first time, and follow up more frequently after that.
5 Pick up the telephone and talk to your customer occasionally. Do not just rely on emails.
6 Create a teamwork philosophy and one of co-operation between, each operational area. This means working on removing any silo mentality issues within the business.
In the larger corporate business, work actively to remove any internal political issues. Political issues are the greatest destroyer of value and profits in any corporate business.
7 Beware of the fraudulent employee. They can exist at any level of any business. The two best solutions on beating this behaviour are:
(i) Always use profitability exercises, reports and positive rewards to measure performance. An overt policy against fraud on its own, does not always succeed.
(ii) Publicise and prosecute any employee found to have committed fraud in the business. Management silence does not stop fraud; it just encourages more fraud.
A sale does not exist unless the invoice is paid and the cash in your bank. Any other invoice is a liability.
To seek 100 per cent of invoices raised to sales, is virtually impossible. In the current economic it would be even harder to obtain this objective. However you should never stop trying to achieve the best ratio of invoices to sales possible.
May you be paid today rather than tomorrow.