Setting all invoices as due upon receipt affects all companies differently. Although the option has benefits and drawbacks, these are not clearly defined for all companies. Based on your industry, customers, and product, this decision impacts all businesses to varying degrees. Consider these areas that will be impacted when you change our invoices to be due upon receipt.
Impact on Customers
The obvious impact on customers is the demand to receive payment immediately. This does not allow the customer to use, review or evaluate the goods prior to payment if the item is shipped with the invoice. All customers must have the accessibility to cash, as credit is not a valid payment option. If you assess late payment fees, these are more likely to occur; evaluate if this feature will negatively affect customer satisfaction and retention prior to implementation.
Impact of Cash Flows
For your business, receiving payment as soon as possible increases the resources available for your use. If you experience cash flow issues, consider these payment terms to alleviate liquidity problems. In addition, aligning cash flows with revenue earned makes record keeping easier. For example, sales made in January are collected in January; therefore, cash and sales are – for the most part – both located in the same financial statement month.
Impact on Payment Methods
Altering all invoices to have an immediate due date will affect the payment methods you receive. Shorter payment terms extended to customers should be offset by more convenient ways for customers to pay. This may result in accepting credit card payments and incurring processing fees. In addition, this may result in accepting wire transfers or automated clearing house payment options that also incur higher fees for the recipient. Although this speeds up the collection process, it involves more reconciliations, internal controls and items to account for.
Impact of Software
Accounting software can easily integrate whatever decision you make. Intuit’s QuickBooks allows users to establish default settings, including making all invoices due upon receipt. This automated function permits users to apply the standards to all customers consistently, not worry about accidentally omitting the terms, and override the terms as needed. Your accounting software can add your payment terms to the face of your invoice. Plus, sub-ledgers maintaining accounts receivable balances will automatically factor in the new payment terms. If you are considering introducing new payment terms, you can integrate your software with almost any alteration.
Variables to Consider
When determining if all invoices should be due upon receipt, analyze the dollar amount of your billings. Smaller projects or invoices are more suitable for imposing quicker payments. In addition, explore previous contracts with vendors; historical limitations may also be in place to prevent changes. Discuss the potential change with major customers before imposing the actual change. Give sufficient notice to vendors if you make a change, and never retroactively apply changes in due periods.