Five steps to faster payments

Invoices are rarely produced as quickly as they should be, even in the most successful companies. But understanding the reasons behind the delays will help you to speed up payments and improve cash flow.

1) DBO (Days Billing Outstanding) is not the same as DSO (Days Sales Outstanding). Billing delays make up the difference between the two and are often overlooked. By tightening procedures to reduce billing delays, you can achieve much faster payments.

2) Poor practice and overly complex pricing often means invoices need manual checking. Manual checking leads to delay. If you improve internal processes, automate as much as possible and simplify pricing, those invoices will be in the post much faster.

3) Consolidation of several orders into one invoice may be administratively efficient but can lead to a billing delay of 15 days. If the consolidated invoice isn’t sent until month end, the delay can grow as customers realize that payment delays of one or two days improves their month end AP balance. So, if consolidated invoices can’t be avoided, minimize their impact on your cash flow in the following three ways:

  • Establish a threshold value for consolidation. Orders over the threshold values should be invoiced on the day of dispatch.
  • Time any consolidated invoices to avoid month end due dates.
  • Negotiate reduced customer terms to reflect the extra 15 days they can receive from consolidation.

4) Stage payments in contracts often lead to invoice triggers being unclear or missed altogether - this can lead to invoice delays of several months. Improve your internal credit control processes and make one individual responsible for monitoring and acting on your invoice triggers – you’ll see the difference very quickly.

5) If your terms and conditions are unclear, customers can interpret the terms as either starting from when they receive the invoice or when the goods arrive. Depending on the method of dispatch, this can postpone the due date by several days, especially if you aren’t 100% sure when the goods or invoice were actually received by the customer. So be very clear when payment is expected. (If you need more information on this, our next blog post will help.)

These five simple steps could help you to improve cash flow and, when handled correctly, need not upset customers. Why not give them a try and see the difference? If you need more information then email me - david.wojcik@justoneconsultancy.com or telephone JustOne Consultancy on +44(0) 203 303 0310.