Creating Invoices and Account Statements

In order for customers to pay you, they have to know how much they owe. Before writing a check, your customers, especially if they are businesses, will want a lot more information than just the amount due. Your company also has its own bookkeeping to consider. An invoice is the source document that satisfies everyone's needs here: You need it to record the on-account sale, and the customer needs it in order to pay you properly. At the end of each month, you need to prepare account statements for all customers whose accounts have had transactions during that month. Several different transaction types may have taken place, such as:

  • Sales

  • Credits

  • Payments

  • Discounts

  • Finance charges

Sales, as you learned in Chapter 6, are documented by invoices. Credit memos are essentially negative invoices; they reduce the customer's balance. Credits are usually granted when customers return merchandise or are unhappy with goods received, or to remove a disputed charge from an account. Payments are usually received monthly from credit customers, often (but not always) for the full amount of the previous month's statement. Customers may take early payment discounts that you offered in an effort to bring in cash faster; when they do that, the payment won't match the previous statement balance and you have to adjust the account accordingly. Finally, you may decide to add finance charges to the statements of late-paying customers. Any transactions that apply to a particular account will appear on that customer's monthly statement.

Creating Invoices

Accounting software comes prepacked with standard invoice forms.

Some programs let you customize the invoice design; for others, you're stuck with the layout they supply. All of them, though, will print your company name, address, and phone number on the top of the invoice, and some even allow for artwork (such as company logos). Invoices created by accounting software are automatically numbered in sequence, unless you manually override the invoice number. They also automatically include all pertinent customer information, including the bill to and ship to addresses, contact name, and details of the sales transaction.

Manual invoices require a little more work on your part, whether you create them on your computer or use preprinted manual invoices (available from most stationery stores or print shops). You have to fill in all of the customer information, as well as the details of the sale. Be extra careful with your math, especially when it comes to calculating any applicable sales tax; if you don't charge the customer enough, your company will take the loss. In addition, make sure you have a copy of every invoice somewhere, whether you save it on your computer or make a photocopy before handing it over to the customer.

Preparing Monthly Statements

A basic customer statement looks like a numeric grocery list: it contains every invoice number, total sales amount, payment received — basically a quick review of the month's activity without all the cumbersome detail. At the top, your company name and mailing address must appear (even if you enclose a preprinted self-addressed envelope), as well as the name and billing address of your customer.

Customer statements are created automatically by most accounting programs; all you have to do is request them. You may have several print options, such as not printing any zero or credit balance accounts, or not printing any accounts without activity. While it can be much more efficient to skip over the accounts with no current activity, it's a good idea to print zero and credit balance accounts that have had activity during the period. Even though you probably won't mail them, you can still look at them to make sure they appear correct.

Why should I include a self-addressed envelope?

Customers will pay you more quickly when their bills come with payment envelopes. It's a lot easier to stick a check in a ready envelope than to bother with a blank one. Also, you'll avoid address errors.

With a manual system, you create statements for each customer based on the current information in your accounts receivable subledger. Each ledger page contains at least summary information of every invoice, payment, and credit transaction that's occurred during the month. That summary information is all you need on the statement, which is really just a listing of the monthly activity culminating in a total balance due.

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