The following article should not be be construed as tax or legal advice. Always consult with your tax or legal advisor before issuing payment requests, receipts or invoices.
If you ask most people, they would tell you that paper invoicing is a huge waste of time! Printing paper books, storing them, and physically writing out services is very time consuming. Who has the time?
For some businesses, paper invoicing and receipt writing really is the right option. Let's look at the differences between paper and computer invoicing.
What is an invoice?
Before we get started, it's important to understand the different types of documentation businesses can generate. Different jurisdictions will require different sets of documentation based on their rules, and it's important to ensure that your business is following their standards. Customers may require documents which form a chain of sales from price quotes, to order numbers, to delivery confirmations, payment requests, and finally a receipt!
In general, every business will need at least some form of the following:
Payment request - Depending on where you live, this could also be called in invoice! A payment request is sent to a customer with an amount to pay, payment instructions, and a list services rendered or goods purchased. In B2B (business to business) transactions, a payment request is almost always required; however, in B2C (business to customer) transactions, payment is usually requested.
Receipt - Receipts document payments. The receipt should contain the name of the the goods or services purchased and the amount which was paid. In B2B transactions, receipts are usually generated after payment is matched to an order; however, in B2C transaction a receipt should be given when leaving.
Tax invoice - In countries with VAT, a tax invoice (not to be confused with a payment request/invoice!) is required. Tax invoices explain what services were rendered and how much tax was collected and serve as the evidence for tax filings. It's sometimes possible to combine receipts and tax invoices onto the same.
When to issue documentation
Documents requesting that the customer pay, or has paid, are usually set out in regulation; however, that's not always the case. In some cases, payment requests are based on contract milestones or on a regular cycle. For example: Some service providers may provide a series of services over the month, but issue one request for payment on the last day which will be paid later. Other companies require advance payments prior providing services or to being work on goods.
In B2B transactions, there almost always is a governing contract which outlines the details of the sale, pricing, and payment agreement. Generally, businesses have internal procedures and controls which ensure that all payments are reviewed before they are made. Contracts will often set out that a formal payment request with itemised services is required before the payment is made.
In B2C transactions, the business is working with a regular customer. Customers who call to procure services for themselves do not normally require itemized lists of what they are purchasing because they do so immediately! They call to ask for services, and the business provides them (for example: a massage therapist). Customers walk into a store, look at the price of the good, and check out. They don't need formal requests.
Regardless of the transacting parties, a receipt is always required once the payment is made. Receipts serve as proof of payment, support tax filings for the business, and serve as evidence for regulatory bodies. In most countries, it's the law.
Does the business take credit cards, cash, cheques? How does the customer pay? Paybox and BIT are free, Isracard and Max charge a percentage fee for each transaction. The bank charges a small fee for each coming payment. Which to choose?
The payment taken is going to depend on the type of business and its clientele. Some wholesale businesses do not accept credit cards because the values are too high leading to higher fees. Many businesses have stopped accepting cheques. In many B2B transactions, bank transfer is the only acceptable method.
The payment method used can be integrated into the billing process and reduce both cost and resource.
Paper or computer?
So - paper or computer? As always, it depends on the business.
The advantage of a computer based invoice is that it's always available, can be managed remotely, and that the types of documentation you need are always available. Many services have packages which can be customised to your business needs. The requirement to save originals is no longer needed because receipts and invoices are digital and can be emailed to accounts as needed. Many invoicing services also provide credit card receipt services. While the often come with a fee, they are usually small and offset against what would have been the cost to procure a physical book. Receipts and tax invoices automatically generate reducing the effort of the business!
Paper based books can also be appropriate. Paper based booklets are appropriate in businesses which have small numbers of transactions for larger values and the services are simple. They are also often used in businesses which provide services B2C and customers come to make purchases and pay using cash only.
Chayim Messer Consulting is always available to assist small businesses determine the right order to cash process that is both cost effective and can be maintained with minimal effort. For those businesses which have more complex needs, we provide back office support and worry about your compliance. Contact us today for a free consultation!