If incorrect or untimely invoices are sent, it has a negative impact on a company’s cash flow. Incorrect invoicing is the biggest reason customers do not pay on a timely basis, so distributing correct invoices helps improve your company’s cash flow.
To obtain cash, companies must send invoices quickly and accurately. Invoice as soon as the work is complete. Ensure all documentation is collected and organized before an invoice is issued. The invoice process should begin as soon as the work order is fulfilled.
A contract or sales agreement may specify payment terms, such as when the invoice will be sent and when it is expected to be paid. Otherwise, a sale is considered to occur when a product’s title of ownership is transferred to the customer or delivery of services to the customer is completed. If a company’s financial records are maintained in accordance with Generally Accepted Accounting Principles (GAAP), sales are recorded once a service or product is delivered. So, invoicing should occur at – or as soon as possible after – this point.
A transaction is considered earned and revenue may be recognized when the following four conditions are met:
- There is persuasive evidence that an arrangement exists, such as a contract, sales agreement or purchase order.
- The fee charged is fixed or determinable.
- The delivery or performance has occurred.
- Collectability is reasonably assured.