The Problem with Issuing Many Small Invoices
Many companies are in the business of selling small-value items to their customers. Examples are rife in the office, maintenance, and janitorial supply areas. These companies suffer from high administrative costs, because it is quite expensive to issue, mail, and collect payment on an invoice. In some cases, the administrative cost exceeds the revenue generated by a sale.
The Single Monthly Invoice
One of the less-expensive ways to deal with small-value sales is to aggregate all sales made on credit during a certain period of time, such as for a month, and generate a single invoice that contains all of these sales. Doing so can trigger a massive reduction in the number of invoices outstanding.
Before implementing an aggregated invoice solution, consider the following issues:
- Cash flow. Only wait to aggregate shipments into an invoice if doing so will not cause incoming cash flows to be excessively delayed. Possible alternatives are to only aggregate the lowest-value shipments, or to compress the payment terms on aggregated invoices.
- Arguments. The resulting invoices will contain many line items, which means there are more possibilities for customers to delay payments because they are arguing over a small number of these items. An alternative is to separate out those line items for which payment deductions are most common, and aggregate all other items into a small number of invoices.
- Processing complexity. Customers may not like these massive invoices, since it could take a considerable amount of time to conduct three-way matching on them. If so, encourage customers to avoid three-way matches on low-value invoices of this type.
Thus, the aggregation of small-value credit sales into a single invoice can reduce administrative costs, though there are a number of implementation issues to consider before doing so.