Billing and purchasing

Getting paid in a timely manner for the work that you perform is critical to your profitability. So, you should define and manage your billing processes. Here are a couple of key areas.

Are quotes correlated with invoices?

Seems obvious, but care should be taken to make sure that your invoices match the quotes to which the customer has agreed. In doing so, you can greatly reduce confusion during the billing process that can result in unnecessary delays in receiving your payment. Not to mention the potential re-work.

Change Orders

It is amazing that some companies go to the effort to charge a customer for a change order, but lack the coordination on the back-end to ensure that it gets properly billed and paid. So, implement a process to ensure that you account for change orders. For instance, some Alliance Partners include a financial verification that the customer has paid all outstanding bills, before they can close a project.

Accounts Receivable

There should be a defined process to monitor your accounts receivables. Set metrics (e.g. average days outstanding) that you can monitor and work to improve.

Then, establish a process to escalate and pursue overdue accounts. This may be a function of how long it is overdue as well as how much is outstanding. Whatever works for your company – just define it and stick to it.

Accounts Payable

You should also define similar processes for purchasing to ensure that you make timely payments. I know, I know – sounds like a vendor just wants to get paid on time (and we do). But, more importantly for your business,  you can avoid problems (e.g. additional charges, credit hold, ….)

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3 Responses to Billing and purchasing

  1. Jim Campbell says:

    Another important trend to consider is the lengthening of net payable terms. The industry standard used to be 30 days, but this payment turnaround cycle has been lengthened. We are now out to net 120 on some customers. Other (mainly automotive) have special conditions that apply when invoices are entered into the client’s system, so that a single day delay on invoice receipt can delay payment by as much as 1 month. Try to negotiate with your clients on these terms, since they strongly affect cash flow. And adjust your pricing accordingly if you cannot. Or simply walk away.

  2. Jack Barber says:

    Jim – I hear you. And, Alliance Partners definitely get pressure from customers on payment terms. Heck, they often want you to finance the entire project – and not pay anything until the project is complete. But, my advice is to present your standard payment terms (net 30). Then when pressed, you can respond,”I didn’t know that you wanted us to finance this project (with longer terms). We’re not a bank, but we’re happy to provide you with this service, the new price including financing is ….” OK, maybe it won’t be quite that simple, but I think the perspective that you are providing an additional service that has a value is relevant.

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