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Juno Payments > Articles by: Gordon
30
May

Understanding Different Invoice Types

AP/AR AutomationGordon

Understanding Different Invoice Types

There is no “standard” format for an invoice, they differ in relation to industries, processes and many other variables.  For example, an invoice related to transportation is not formatted the same way or used in the same sense as a retail invoice.  Invoices used for services rendered on time, hourly or daily basis, are very different from those made out products bought or sold.  In general, they can be of several common types: 

Standard Invoice:

This is the most common type of invoice that you come across regularly.  They exist in electronics form such as templates that you can use with a word processing package, or paper forms you can purchase from office supply store.  Typical information such as name, address, customer number, invoice number, item description, quantity, per unit cost, shipping, tax, total cost, due date, payment terms, and payment options etc…  They are used across a broad range of industry of all sizes.

 

Proforma Invoice: 

It is an abridged or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods.  It notes the kind and quantity of goods, their value, and information such as weight and transportation charges.  Pro forma invoices are commonly used as preliminary invoices with a quotation, or for customs purposes in importation.  They differ from a normal invoice in not being a demand or request for payment.

 

Commercial Invoice: 

Commercial invoice is the primary document used for importation control, valuation, and duty determination.  It identifies the products being shipped, and is a customs document when used in foreign trade, or when exporting an item across international borders.  

The form could include items such as name, address and phone for shipper and consignee, Terms of Sale (Incoterm), item description, Harmonized Tariff Codes, number of units, unit value, and total value of each item, etc…

 

Credit Note (Memo):

A credit memo informs a buyer that the seller will be decreasing or crediting the amount that the buyer owes in accounts payable, thus decreasing the amount of accounts receivable in the seller’s account.  It is often issued when a seller has made some sort of mistake, or something requires an adjustment towards a sale.

Credit memos from a bank are usually in regard to reversing transactions in which it made a payment it should not have, or a collection it made upon a note receivable or a certificate of deposit. When the latter occurs, the bank will transfer the collection of funds into the depositor’s account.

 

Debit Memo:

A debit memo informs a buyer that the seller is debiting or increasing its amount in the accounts receivable, thus increasing the amount of the buyer’s accounts payable due to extenuating circumstances. 

It is often issued when a seller has not billed or charged enough to the buyer, or it might come from another error or any other factor requiring an adjustment.  When a seller issues a debit memo, it is normally required that the seller give specific details why it is being issued.

Timesheet Invoice:

Timesheet invoice is a blend of an invoice and timesheet, in which it records day and time spent on a particular project.  It includes the name and the description of the project, as well as the amount the client owes based on time spent.  It is often used in professional services and consulting.

 

Self-billing invoice:

Self-billing is a commercial arrangement in which the buyer agrees to prepare the invoice on-behalf of the seller and issue the invoice to himself.  The invoice, along with the payment, is then sent to the seller for processing. 

The benefit to the seller is shorter Days Sales Outstanding and shifting the cost of invoice creation to the buyer.  The buyer benefits from having tight control of what was billed, and minimizes disputes due to incorrect billing.  However, this model shortens the Days Payable Outstanding and can have negative impact on the buyer’s working capital.  So the use is not wide spread and is limited to special cases such an employee insurance policy billing between an employer and a carrier.   

 

Recurring Invoice:

Recurring invoicing requires permission from the buyer to be charged on a regular basis for a set amount.  The repetition will continue until an agreed-upon termination date or when the buyer withdraws permission.  The prime examples include online subscription, cable companies, utilities, and gym membership.

The benefit is obviously the reduction in billing cost due to the automation. But if there is an error in the process, it is not always found initially as the receiver often becomes used to the repetitive nature of the invoice.  Reversing and correcting the error would require multiple steps and compensating transactions, thereby making it much more costly.

 

Due to the constantly changing  business climate and supplier/customer mix, a well-run AP/AR department should always be prepared for new invoice types.  When it occurs, processing delay should be within the established guideline, and the processing exception should be a one-time, rather than a recurring event.   Key capabilities such as OCR and fields mapping of the new invoice to the appropriate entry in your finance/accounting system should be easily accomplishable by your department staff, without having to resort to outside consultants or internal IT staff.  This agility and flexibility in invoice processing would reward your firm with a stable and healthy cash management.

 

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8
May

Top 10 considerations for the quintessential AP/AR solution

AP/AR AutomationGordon

Top 10 Considerations For the Quintessential AP/AR Solution

Whether you are evaluating a new platform in Account Payable and Account Receivable automation, or simply performing a periodic health check to ensure you are staying competitive, you should consider these 10 factors for the quintessential AP/AR automation solution:

  1. Is it locking you into a particular accounting, finance, or ERP package? Large monolithic platform can hold you hostage and limit your freedom to choose.
  2. Does it integrate with what you have? Don’t accept rip-and-replace as the only option, it drives up the cost and risk, and you are bearing all of it.  The choice should be yours, not theirs.  Once you complete the conversion, it is very difficult, and often impossible, to revert to the previous state.  If your backend stays intact, you can simply turn it off if it does not meet your need.
  3. What is the highest level of automation it provides? – this directly impact your savings and error rate. Even with complex approval logic and business rules, 100% is now possible with the latest technology.
  4. Is it an AP/AR pure play, or is it a small add-on to a large package? Where they make money affects the pace of innovation and how much they care.
  5. Is inbound/outbound payment processing part of the package? This last mile is often the most expensive and fragile part of your operation, it should provide an integrated option.  Again, there should be a choice, and it should be yours to make.
  6. Are they providing both AP and AR automation? You will need both at some point.  Comprehensive cash management requires you to ultimately coordinate and orchestrate both the inflow and outflow operations in order to meet a cashflow, working capital, or cash conversion cycle objective.
  7. Can your business users change the automation flow without IT involvement? Your operation will evolve over time, you cannot afford to wait for others outside of your control to make every little change.  When there is a wait, you are required to manually augment the processing until the change is implemented.  This is the element that are often overlooked when deciding on a solution, and it has the longest lasting impact.
  8. How much do you have to maintain? Unless you have a business or legal requirement to keep the system and data in-house, you should run it in the cloud if it is certified and secure.  You will always be on the latest and greatest, and it can grow with your business without worrying about capacity.  It eliminates much of the initial sunk cost and on-going maintenance cost.
  9. How much and how long does it take to implement? Time and money matter.
  10. Is there a large up-front platform commitment? Avoid sunk cost – unless they are willing to guarantee the result.  Be smart, there is a reason they call it “sunk” cost.

In Juno Payments, we apply this set of criteria towards everything we do.  Whether you have an existing AP/AR automation solution, or still processing some activities manually, we hope these considerations will help you make better decisions.  Knowledge is power.

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24
Apr

Mitigating The Top Challenges Faced by Smaller Businesses

AP/AR AutomationGordon

Mitigating The Top Challenges Faced by Smaller Businesses

Those of us who also work with smaller businesses understand they face a unique set of obstacles.  There is a good recent article in Investopedia which highlighted the top competitive disadvantages, it discussed five key areas that are working against smaller companies and must be overcome to become successful:

  1. Raising Capital
  2. Efficiency
  3. Purchasing Power
  4. Talent Gap
  5. Name Recognition

In tackling these challenges, do not make the mistake of trying to fix them all, as most smaller businesses simply do not have the resource to accomplish all at the same time.  It is best to prioritize them, start with those with the largest impact, fastest results, and easiest to implement.

 

We believe the top candidate is in improving your cashflow and liquidity, which are paramount for smaller businesses.  You can initiate a set of limited, quick, and simple activities to mitigate some of these challenges within your cash management operation. 

  • Start with Efficiency – Labor accounts for over 62% of the operation cost in Invoice Processing, it is also the root cause for much of the errors and frauds. By minimizing human intervention through automation, you can cut your cost by 90%, and most importantly – removing labor resource-imposed bottlenecks in your peak seasons.  Invoice can be processed and issued on-time regardless of volume variations, you no longer have to staff based on the peak season, and just to have them idle on slow days.  This removes the efficiency gap in cash management inherent to smaller companies and allowing you to better compete with others.
  • Eliminate Talent Gap – Employee turnover and hiring creates a particularly difficult challenge to smaller businesses for several reasons:
    • Tasks are often performed by a small number, or in some cases, one individual. So any turnover, or temporary staffing gaps, can be keenly felt across the entire company.
    • We rarely see knowledge management system, or formal training, in place for most roles. Often, knowledge and best practice stays with the employee, when they leave, the prized optimization achieved throughout their employment goes with them.  You are left with restarting from square 2, or worse, square 1.  AP/AR is an external facing function, your customers and suppliers will see every disruption and billing error, it can do great damage to your reputation, brand recognition, and customer loyalty.  All these damages are easily avoidable, there is no reason for non-action.
    • With today’s low unemployment and competition for skilled talents from other employers, you face two choices:
      • Raise wages and benefits to retain talent – both drive up your cost and escalate the wage spiral.
      • Accept frequent talent drain as a norm – this is often a losing strategy. You will never get ahead of the pack to become successful, especially when you are dealing with skilled resource.

Human is great for creative tasks, no matter what people say about artificial intelligence, at least for now, human innovates better than any technology or machine.  However, in invoice processing, there is little room for creativity, much of tasks are repetitive and codified.  Therefore, we believe there is a third option for dealing with the talent gap challenge – by automating the process.  The knowledge and skills are now kept within the automation, it becomes an asset which cannot be lured away by higher pay or better benefits, you can dramatically reduce your talent gap headache.  Your invoice processing and billing will always be consistent, accurate, and timely.  It improves your #5 challenge – name recognition, by increasing customer/supplier satisfaction and cultivating loyalty.

These initiatives ultimately benefit key financial metrics such as reducing Days-Sales-Outstanding, optimizing Days-Payable-Outstanding, and reduces your Cash-Conversion-Cycle.  In conjunction with a stronger cashflow statement, they will improve your #1 challenge – Ability to raise new capital regardless of the funding channel.

In Juno Payments, we are eager to work with you and start this journey.  We provide an invoice processing automation solution that delivers all the benefits we discussed above.  It is a cloud-based pay-for-what-you-use platform, there is no hardware to buy or software to maintain.  You can easily start a small pilot to experience the benefits and grow your usage if you like what you see.  It allows you to reap the benefits while preserving your precious capital.

We hope this article resonates with you.  Please visit the key information links below and we would appreciate an opportunity to sharing more and design a solution that is right for you. 

Want to Learn More?

1-888-514-8118

[email protected]

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