Issue a Single Monthly Invoice

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Issue a Single Monthly Invoice

The Problem with Issuing Many Small Invoices

Some companies make a business out of selling small quantities of products in small batches, which necessitates a very large quantity of invoices. For example, a company that sells nails in batches of an ounce per sale will issue 16 more invoices than one than one selling nails in batches of one pound. If the cost of issuing an invoice is as little as $1 (and it is usually much more), then the price at which the nails were sold will probably be far less than the cost of issuing the associated invoices. Clearly, companies that must issue enormous numbers of invoices in this manner will find that their administrative costs are excessive.

The Single Monthly Invoice

A way out of this dilemma is to group all sales for a specified time period, such as a month, and then issue a single invoice covering all of the sales during that period. This approach is similar to the invoicing method used by credit card companies, which aggregate all sales for a full month and then issue a single billing. By using this best practice, a company can eliminate a very large proportion of its total invoice volume.

Implementation Issues

There are some issues to consider before using this best practice. One is that this approach is obviously most suitable for companies issuing large quantities of low-dollar invoices. Conversely, it is not a reasonable approach if invoice volume is low and dollar volumes are high. If a billing is for a large amount of money, it makes little sense to wait until the end of the month to issue an invoice, since this only delays the time period before the customer will pay for it.

Another issue is that the existing accounting software may not support this feature. If not, a company must go through the added expense of custom-programming to group a series of shipments or sales into a single invoice. Another problem may be customers – they are accustomed to receiving a single invoice for each shipment, with a separate purchase order authorizing each invoice, and they will not know what to do when a single, summary-level invoice arrives in the mail. The best way to resolve this problem is to make it an option for customers to accept summary-level invoices, rather than unexpectedly springing it on them with no warning and requiring them to use it. By taking the time to explain the reason for the single invoice and how it can benefit customers, too (with less paperwork for them to sort through), the customer acceptance rate should be quite high.

The final problem with this method is that it takes longer to bring cash in to pay for shipped goods, since some shipments may be sent out at the beginning of a month, but not billed until the end of the month. To avoid this problem, a company can impose a shorter due date in which customers must pay, though customers rarely receive this well. Instead, it is best to carefully analyze the interest cost of invoicing; if there is a clear benefit despite the added cost, then this best practice should be implemented. For many billing departments, it should be implemented sooner rather than later.

In short, issuing a single invoice to customers each period makes a great deal of sense for those companies shipping many small-dollar orders. Companies dealing with large-dollar orders should probably leave this best practice alone, since there is an added working capital cost associated with its use.

Podcast

A discussion of billing best practices is available on Episode 73 of the Accounting Best Practices podcast. Listen Now.