Invoicing can quickly become complicated in supply chain logistics if you do not have the appropriate systems, processes, and software to support this effort in your industry.
One of the most complex issues is deciding whether to invoice before delivery of goods from your company to a buyer. Without the proper infrastructure in place, there could be a lot of headaches trying to keep track of everything that is affected – from order status to accounts receivable to accounting.
Let’s examine whether it’s a good idea for your company to create an invoice before goods are actually delivered to your customer.
What Are the Advantages of Invoicing Before Delivery of Goods?
Before we dive into whether invoicing your customer before the delivery of goods is a good fit for your company, let’s review the advantages of this process. After all, you could just wait until you receive confirmation that your customer has received goods and then send an invoice.
But, there are clear advantages to invoicing before the delivery of goods. Consider the following advantages of taking a few extra steps in the invoicing process:
– You can speed up the Accounts Receivable (A/R) process of receiving payment for goods sent to your customer. Invoicing ahead of time will support cash flow in your company by accelerating the rate at which you receive payment for goods sent to your customer.
– You can support customer relationships by allowing them to include the bill in their budget or expense report. In other words, your customer might need to spend a certain amount each month, quarter, or year; otherwise, they might be subject to budget cuts. By invoicing ahead of time, your customer can include this cost in their budgetary report for the given period instead of waiting until the next period when they actually receive the goods.
– You can provide your accounting team with a “heads up” to record unearned revenue that matches up against the Cost of Goods Sold (COGS). Then, when Accounting receives the invoice with payment, they can quickly match the transaction to record revenue.
Despite its advantages, invoicing before the delivery of goods is not ideal for every company. The question is: should your company pursue this opportunity? Let’s review a common scenario to find out more.
Scenario for Invoicing Before the Delivery of Goods
Consider this scenario for suppliers and manufacturers. Your company receives a purchase order (PO) for the goods or products your customer wants to receive from your company. Then, you fulfill the order by either pulling the items from your warehouse or manufacturing them to be delivered to your customer.
Of course, your customer is not going to receive the goods immediately; there is an interim period where the goods need to be delivered to your customer through the air, on the ground, or via sea. This could take days, weeks, or even months for your shipment to reach its destination.
Many companies would rather wait until they receive confirmation that the items have been successfully delivered to the customer before sending the invoice. A common reason why is that it could create additional billing and accounting headaches if the shipment is lost, damaged, or delayed.
To make a proper determination of whether your company should invoice before goods are received, you need to review whether you have the ideal setup to manage this process.
Is Invoicing Before Delivery of Goods the Right Fit For You?
Use this checklist to evaluate whether invoicing before the delivery of goods is the ideal fit for your company.
- The Purchase Order does not have restrictive terms and conditions preventing you from invoicing before your customer actually receives the goods.
- You have strong Quality Control that gives you confidence that your team will fulfill every line item in the PO prior to shipment.
- You have clearly communicated with the customer that you will be invoicing them before their expected receipt of the goods.
- Your carriers have a strong track record of prompt, on-time deliveries without damaging goods.
- You have strong internal procedures for how to advance orders from in-progress to complete to in-transit to ready for invoicing.
- You have software tools that make it easy to manage complex invoicing requirements.
- Your accounting team is integrated into the process to make proper entries about the status of each transaction for accounting purposes.
If you have concerns about one or multiple areas, then invoicing before your customer receives goods might not be the right fit for your company. In this case, you might need to wait until you receive confirmation that your customer has actually received the goods until you send the invoice.
However, there is an opportunity to close gaps in your processes and utilize software tools that will provide you with the ability to invoice before goods are received. Then, you can take advantage of this opportunity to enhance your company’s cash flow. We can help.
Work With CloudLogix to Advance Your Invoicing Capabilities
At CloudLogix, we have been in your position before solving supply chain logistics challenges. Our team of experts can review your processes to evaluate your current invoicing state. We can also make recommendations on how to close any gaps that would position you to manage the process of invoicing before your customer receives items.
Plus, our CloudLogix platform simplifies the invoicing process. You can save time, effort, and resources by utilizing our platform to manage complex invoicing situations:
- Set up custom invoicing rules
- Allow authorized users to approve invoices or re-assign invoices
- Create statements for individual sites or customers
- Generate remittances for each order
- Manage payment history to record when payment is received
- Set up aging notifications to support Accounting’s A/R function
- Log all activity for reporting and auditing purposes
Each affected person or team in your company will have the ability to view the status of orders, invoices, payments, and other details in real-time using one simple dashboard. No more spreadsheets. No more wasted communication.
Instead of trying to track down details or verifying whether an invoice has already been created for a particular order, you can find answers right away using the platform. Plus, we’ll work with you to ensure that your processes align with the use of our software to make sure the right person is taking the right action in the right way. We make Invoice Management simple for suppliers and manufacturers!
Contact us to find out more about whether invoicing before delivery of goods is the right fit for your company. We’ll also show you how our platform supports real supply chains just like yours. Let’s get started today.