Billing

Having the right payment provisions will help your company holdon to the profits it earns. One of the smartest things you can dois try to bill before delivery. There are three ways you can issuean invoice before you ship the final product:

1. Milestone billing is fairly common where heavy,up-front investment is required for a new product or job. In thiscase, the completion of a certain event or milestone (such asplacing a subcontract, passing a critical design review, completinga set of tests or receiving a large amount of material) is given abilling value. This authorizes you to issue an invoice when theevent occurs–often long before completion of a deliverableitem.

2. Progress billing is fairly common in the defense andaerospace industries and allows you to invoice costs, as incurred,on a routine, bimonthly or monthly basis. This way, your customerfinances your inventory, thereby reducing your need for workingcapital. In effect, your costs are recovered before you deliveranything, even though your customer has a lien against theinventory.

3. Sub-line-item billing is fairly common in theconstruction industry as it recognizes the times when an entireitem can’t be completed but main elements of it are. Examples ofsub-items are foundation, plumbing, framing and roofing. Theadvantage here is that as each major supplement is completed, aninvoice can be issued, thus strengthening your cash flow.

Define when you’ll be paid by setting payment dates. Why take anorder if you don’t make an effort to assure payment? Bear in mindthat extending credit to customers has a real cost to you, and besure your contract (and price) provides for that cost. Sales topoor credit risks should be COD. Discounts can be offered but tiedto the shipment date, customer acceptance date, your invoice dateor a calendar date. Once the payment date is established in yourcontract (purchase order, etc.), you have a legally enforceabledocument.

Enforcing penalties for late payment helps you get timelypayment. What happens today if a customer pays you 30 days late? Doyou collect interest or are you just happy to get paid? If yourterms and conditions require a penalty for late payment, youimprove your chances for timely payment–and, based upon the termsof your contract, you have recourse for legal action should youneed it.