I have been a member of the Tungco team since March of 2014. Last fall I completed a CPE course entitled Best Practices for Getting Paid Faster (Invoicing Best Practices). I was impressed with the relevance it had to not only our company’s accounts receivable, but to all companies.
As with any company, not just those in tungsten recycling industry, Accounting Directors, Controllers, and CFOs are all concerned with the accounting cycle and DSO (Days Sales Outstanding).
Why does this topic matter? Most importantly, it affects cash flow. Additionally, it provides DSO improvements. Some bonuses are tied to DSO or AR aging. Finally, the threat of non-payment increases with age. Statistics show that approximately 90% of AR is collected that are 30 days outstanding, while 80% at 60 days, and only 70% at 90 days.
The following is a list of relevant best practices. While companies may not be able to achieve all of these, the more that are reached, the lower the company’s DSO will be:
- Make sure payment terms are always discussed and understood before the first order is shipped
- Set reasonable credit limits
- Obtain credit checks
- Accept electronic payments
- Avoid mailing invoices (send via email)
- Invoice on the day the order ships
- Timely follow up – don’t wait 30 days (past due is past due)
- Consider EPD (Early Payment Discounts) especially for slow-pay customers
- Follow up and demand re-payment of EPD if not earned
- Late Fees – discuss up front and charge/collect if applicable
- Be nice to AP people
- Begin collection efforts early
- Re-evaluate relationships with chronic late-pay customers. Some customers measure how long they can get away with late-payments
Many times, invoice payments are delayed due to inaccurate, incorrect or incomplete information on the invoice. Don’t shoot yourself in the foot! Companies continually make mistakes regarding billing, and the result is delayed payments. Every attempt should be made to pay attention to the following details:
- Send invoice to correct place (exactly where the customer’s AP dept. instructs)
- Include the name of person placing the order
- Include PO#
- Make sure invoice is accurate
- Include Payee Name “Make Payable To”
- Include Billing Person Contact Information
- Include Due Date (Bold)
- Include Remit to Address
- Include Name/Contact for Billing Inquiries
While none of us are perfect, and it may not be possible to attain 100% compliance with each topic mentioned above, the more we are able to accomplish, the better our DSO and Accounting Cycle will be.
Chadley Ladd – Director of Accounting