A guide to quoting and invoicing – the impact of bad processes
In blog one of this series we looked at the basics of quoting and invoicing, discussing what they are and the role they play in generating cash. Yet, many still rely on inadequate processes when managing these vital functions. We take a look at some of the most common and the impact they can have on small businesses.
Quotes and invoices are vital to cash flow.
They document how much future jobs will cost, as well as bill for completed work, ensuring both the buyer and seller know the financial details of a transaction. It’s therefore imperative that the information included on them is accurate. Relying on inefficient processes means that businesses run the risk of producing inaccurate documents. This can lead to negative cash flow which, for smaller businesses in particular, can be devastating.
Guesswork has no place in quoting
This document estimates the cost of a potential job and, while there is sometimes flexibility, many will be expected to honour the figure provided. Some businesses get started off on the wrong foot by not accurately calculating how much a job will cost them to complete. This should include the cost of materials, running machines and labour. Guesswork has no place in the quoting process. If calculations are too low the business may make a loss, if they are too high prospects are likely to use competitors.
Standardisation is imperative
The quote is often the final chance for an organisation to put its brand forward and prove how its services differ from those of the competition. Poorly laid out quotes do not reassure prospects that the business is a truly professional outfit. Documents created manually, in an ad hoc manner, take a long time to produce and are susceptible to human error. There needs to be a standardised process, one that clearly sets the layout and ensures the necessary information is included. This enables companies to quickly produce quotes immediately after they have been requested.
Keeping the communication channels open
Many small businesses don’t have a process in place that enables them to track issued quotes; a challenge that only becomes more complex as documents are sent across multiple channels. While some prospects may respond to estimates without the need for a follow up, the majority of them won’t. If the communication channel isn’t kept open, potential customers may feel unimportant and buy from competitors. This doesn’t mean businesses should pester for a response, as this is likely to annoy and will result in the same outcome. Companies must find a happy medium.
Manually creating invoices increases likelihood of errors
Invoices are essential documents as they state the money owed and payment terms. Get the invoicing process wrong, and you won’t get paid. Yet, many still create and send documents manually. This often involves multiple occurrences of data re-entry, with information gathered from a number of sources such as timesheets and receipts, which increases the likelihood of incorrect data being used. If inaccurate invoices are issued or have vital information missing, customers will request new ones; elongating payment times, decreasing satisfaction and the potential of repeat business.
Identify who’s paying at the beginning
Another symptom of poor processes is issuing the invoice to the wrong individual. Companies shouldn’t assume the person placing the order is the one paying the bill. All businesses will have an accounts payable team and firms must ensure that the documents are going directly to it. When dealing with larger corporations, the gap between buyer and payer maybe even greater if their activities are centralised and invoices are settled from a head office. Therefore, it’s essential for small businesses to identify who is in charge of paying, or face long delays in payment and the extra cost of re-issuing invoices.
Don’t be afraid to chase late payment
While invoice recipients have a duty to pay on time, late payment is incredibly common. In fact, UK small businesses are owed £250 billion in overdue settlements, according to Zurich Insurance. More established enterprises often have the resources to cover the short-term cash shortage, but many are forced to turn to other expensive sources of finance or miss out on opportunities. Despite these financially damaging effects, many small firms don’t chase overdue invoices. Some feel awkward, believing it will sour the relationship, while others simply do not have the time due to inefficient processes and a lack of manpower. More often than not, this approach results in one outcome – bankruptcy.
Ultimately, bad quoting and invoicing processes will lead to missed opportunities, lost sales, poor prospect and customer satisfaction, a damaged reputation and, at worst, business failure. It’s imperative that small businesses streamline these functions and many are realising that technology is the answer.
In the third blog, we’ll examine the increasing role of technology and how it’s empowering small businesses with more efficient and accurate processes.