You’ll have probably already heard the phrase that “Turnover is vanity, profit is sanity, and cash in the bank is reality”.
It’s one which is thrown around quite a lot, and usually I find that most people create action points that are focused upon the first two.
There tends to be, somewhat of an assumption that the third will just happen, with the perceived challenge being cash flow and the “when?” rather than “if”.
For many new businesses, the process of actually being paid is overlooked, especially by those who’s customer base is predominantly from the business community. If you do not have the luxury of being able to wave a chip and pin device in front of your customers, then life may not be quite so simple.
All businesses, naturally have a level of financial record keeping to do, and so when trying to get paid, it is important to consider the needs of your customer and the requirements they have to keep their finance department happy.
Your customer is very unlikely to just send your business some money without the required paper trail – why would they risk their reputation, or a financial penalty from HMRC for cutting corners just for you?!
This paper trail usually involves the creation of an invoice, and for it to be correctly submitted to the customer. This is the step of the initial phrase which new business owners are commonly unfamiliar with.
There are several basic requirements of creating an invoice, most of which are looking to do no more than simply show who is requesting the money and for what value, what the transaction is for, and who it is being requested from.
According to the HMRC website, a valid invoice should include all of the following information:
The Word “Invoice”
A unique identification number (eg INV001)
Your company name, address and contact information
The company name and address of the customer you’re invoicing
A clear description of what you’re charging for
The date the goods or service were provided (supply date)
The date of the invoice
The amount(s) being charged
VAT amount if applicable
The total amount owed
There is nothing particularly complex about any of these points, which perhaps makes it even more frustrating should one be overlooked and your invoice rejected because of the omission.
It may be that your customer also requires you to include a “purchase order number” on the invoice. This is a reference which is generated by your customer, and sent to you at the time they place an order for your goods/services.
If you know your customer uses a purchase order system, it is important to make sure they give you the number when they should. If you are unable to include the correct purchase order number on your invoice, you are unlikely to get paid. It is therefore perfectly reasonable for you to delay processing the order until you have received it.
More, in depth detail of invoice creation can be found by searching “invoice” on the BIPC Northamptonshire’s COBRA information database which can be accessed for free here: Free access to Market Research, Databases & Reports | Business & IP Centre Northamptonshire (bipcnorthamptonshire.co.uk)
When selling to any customer, be it an individual or another business there will be at least a form of a contract in place.
Contracts for B2B (Business to Business) transactions will usually outline what is expected in terms of payment. These terms may include things like payment terms (eg 30 days/30 days end of month/payment upon delivery/etc), if a purchase order number is required as well as the invoicing procedure.
These terms must, and usually will be followed. It is important that you understand this.
What I mean by that is, if you have agreed to a contract that says you will be paid within 60 days of a valid invoice being received, there is no reason to expect that you will have the money in your bank any sooner than 59 days time.
You knew what you were getting yourself in to at the contract stage, and sending in an invoice on Monday and chasing it on Tuesday will likely make no difference whatsoever.
B2B transactions are not covered by the same ‘consumer protection’ type laws that B2C (Business to consumer, ie selling to people) transactions are. Anecdotally this means that there is a lot more scope for what can and can’t be done – if both parties agree to a set of terms and conditions then it is these which must be followed.
You won’t have to do much Googling to find stories of businesses including terms such as ‘all invoices must be sent via first class post, and printed on pink paper’. Whilst it might seem unreasonable that any letter received with a second class stamp on it hits the bottom of the shredder before it is even opened, there is nothing illegal, or really, even wrong about this.
Should this happen to you, you are left with two options:
1) Rant, rave, scream shout, send as many nasty emails to every department within the business to tell them how outrageous it is that you still haven’t been paid. You could tell them how (although a good relationship and continued trading activity with them is much more important to the survival & growth of your business than theirs), you’re thinking of cutting all ties in the future. You could tell them how THEIR actions are negatively impacting your business and that if you had read the requirements in the first place that you would never have agreed to them. You could even beg them to make a one off exception to their established accounting and audit policies – purely because of how special and unique you are.
2) You could buy some pink paper and first class stamps, double check the terms that you have already agreed to, and then send them a valid invoice.
Bearing in mind the focus of this blog is about understanding what you need to do to achieve the ultimate goal of getting cash in the bank, I know which I would do.
As I said before “These terms must, and usually will be followed. It is important that you understand this.”
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