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Credit control: part 1 – effective procedures for prompt billing and payment

This first of two articles on credit control looks at the importance of raising bills promptly.

Invoicing promptly

The administrative task of raising bills is often seen as unimportant. If we think of the ultimate impact of not billing clients (namely, no income), it is clear that the importance of this activity should be given greater focus.

To effect prompt generation of invoices, firms should set targets for those responsible for client work that encourage them to raise invoices and monitor the amount and age of work in progress (WIP). A monthly review of WIP, where large/old amounts have to be justified to a credit control principal, can certainly focus the mind.

Staff could be encouraged to raise a bill as soon as the bulk of the work is done (for example, when draft accounts are sent to the client), rather than waiting for clients to come back with questions on the draft information. This means the final meeting with the client can be the start of the reminder system rather than the first time the client sees the bill.

Certainly firms who have a fixed fee arrangement in place should bill very promptly as the client will be expecting the amount and payment schedule.

Delegating billing

In many firms billing is only done by a principal. As a result, bottlenecks can occur in the system as partners often prioritise chargeable work over this admin task. However, for various kinds of work, a more junior member of staff could raise the bill and this could become an agreed progress as part of the planning.

Certainly for special or project work, it is effective to issue the bill with the work rather than adding it to the annual bill for tax and accounts work. Clients are less likely to question the bill at the time they most value the work.

Outsourcing departments (such as payroll and management accounts) should be responsible for raising their own invoices as, again, the amount of the fee has already been agreed and no judgement is required. At the point of issuing the bill, the client would have had the output and should have no problem paying the amount.

Payment requests

Instead of raising bills, many firms raise payment requests and then only raise an invoice (with the output VAT included) when the bill is paid. This can create a significant cash flow advantage for the firm.

Conclusion

Many firms struggle to raise bills promptly as this activity is seen as less important than chargeable work. However, the slower bills are raised the further, they are from the work the client has received and the longer it will be before the client pays. The subsequent impact on cash flow can be dangerous for the accountant.

February 2014