If you purchase goods or services from a vendor, you likely have a vested interest in your monthly transactions with those businesses. The same goes for any customers who buy goods or services from you as a business owner. To provide a detailed accounting of a customer’s or client’s monthly activities, many businesses offer a statement of account. Although some businesses still mail them, they can also be provided by email or a web portal. The document serves as a courtesy, helping your customers balance their own books.
A statement of account is a document that shows a customer an accounting of every transaction within a specific billing cycle.
What Is a Statement of Account?
A statement of account provides a list of a customer’s transactions for a designated time frame. Similar to the bank statement you receive for your own financial transactions, a business statement of account details the start and end dates, the starting balance, the ending balance and all of the debits and credits that happened in between those two dates.
Generally, businesses only send a statement of account to customers who have an account and have signed the appropriate agreements. Depending on your personal preferences, you may decide to only send statements of account to those who had activity in a given month. This is especially beneficial if you have some customers who don’t purchase from you every month. It will save you the extra expense of sending statements with zero balances.
Formatting a Statement of Account
If you’ve never drawn up a statement of account, you may not know how to format it. The good news is that there are plenty of templates available to help you, including some in Microsoft Word. It simply needs to have the words “statement of account” at the top and include the customer’s name and address under “to” and your name and address under “from.” You’ll then detail every transaction that took place during the month, including all purchases and credits and keeping a running balance in the far-right column as you go. At the bottom, there should be a total amount due listed as well as instructions on how to pay.
If your customer is automatically billed, be sure to make this clear on the statement. This is an information-only statement. Your customers may be dealing with a stack of invoices and statements and don’t have time to sort through their own records to determine if they’ve paid yet or not. If you must attach a bill to the bottom to avoid printing separate statements for those who autopay, be sure you note on that bill that payment will be debited in order to avoid duplicate payments.
What Is a Bank Statement and Its Purpose?
When businesses issue statements of account, they often do so as a convenience to customers even though it costs extra, particularly if you send it via postal mail. The cost efficiency of this type of courtesy may be questionable unless you can tie it directly back to an increase in your customers paying their bills on time. If they’re continually receiving notice of their transactions along with a bill that makes it easy to pay, they may actually remit payment rather than setting it off to the side until they can check into what they’ve purchased in the previous month.
On the customer end, the purpose of a statement of account is to make bookkeeping easy. Your customers likely have a stream of invoices coming in each month, which means yours is one of many. The information you provide can be easily compared to their own books. As the year progresses, they can take a look at historical data related to the business they do with you and use the information to set future budget predictions.
Statement of Account Examples
The best example of a statement of account is the bank statement you get every month. You’ll get this for all of your accounts, including your personal banking accounts, any investment accounts you own, your credit cards and your own business financial accounts. It usually has a start to end date, a beginning balance, an ending balance and a log of all transactions that happened during that time frame.
As with your business’s statement of account, a bank statement can come by postal mail in paper-based form or be viewed online. If it’s related to your credit card, you’ll likely see an invoice at the bottom of the account statement that includes the amount you should pay and the due date. Unlike statements of account, your bank statement may come even if you had no transactions for the month.
Goals of a Bank Statement
The goal of a bank statement is transparency. Customers want to see all the transactions logged on their accounts throughout the year. Before online banking, customers tracked their transactions in a check register and reconciled the amount when that monthly statement came in the mail. If they forgot to log a transaction, they’d see it on the statement and be able to quickly fix the error. Similarly, businesses also kept track of their financial transactions in paper-based ledgers and double checked the amounts with the monthly statement.
Technology has changed all of that. Now businesses and individuals can log in around the clock and see the latest information on transactions. There’s no need to keep a running tally, but if they really want to stay up to date, they can set up their accounts to alert them every time a new transaction comes across. For businesses, accounting and bookkeeping software makes it easy to maintain a constant overview of all business expenses.
What Is the Difference Between Invoicing and Billing?
Since account statements can include a bill at the bottom, it can be easily confused with an invoice or bill. You may notice that your monthly cable bill, for instance, has information on the various charges while also including a tear-off slip at the bottom for you to remit payment if you aren’t paying electronically. This is a bill rather than a statement of account because it doesn’t detail every transaction that came across your account during the statement period.
However, the difference between invoices and bills can be even more subtle. The terms are often used interchangeably, but the difference is in the way the recipient refers to them. A business often requests an invoice, which is a document evidencing one person’s indebtedness to another. It’s rare that you’ll see a person call his cable bill an invoice, and when it arrives in the mail, it usually is labeled as a bill, whereas an invoice generally arrives with a header reading “invoice.”
Another difference between the two is that an invoice can be seen as a form of credit. The customer has a certain period of time to pay after the product or service request has been fulfilled. A bill, on the other hand, is due by a very strict deadline. If you receive a bill after dinner in a restaurant, that deadline is immediate. However, your water bill could technically be termed an invoice since you can have up to a couple of weeks to pay it, which means the utility company is extending you credit as a recurring customer. This is where the difference between the two can be murky.
How Long Is a Monthly Statement Cycle?
Statements of accounts follow a billing cycle, which depends on the preferences of the business issuing them. A billing cycle is defined as the time period between one statement date to the next. There is a clear beginning and end to each billing cycle, with the new cycle kicking in as soon as the previous one is complete. If statements are sent to customers, they generally won’t be in their hands the day the cycle ends, but the cycle start and end dates are generally printed on it.
Accounting cycles tend to follow industry standards, so it may help to search around. Your billing cycles can range from 20 to 45 days, but it might be easier to set your statement of account cycle in the 30-day range. You can also choose to follow a monthly billing cycle in sending out your statements of account, which means they’ll either start on the first day of the month or the last day of the month.
Handling Late Payments
Unfortunately, there will occasionally be at least one customer who runs late on making payments. You can send late notices or even pick up the phone and call, but often in that event, a statement of account may come into play. Your customer may want to see exactly what the charges are. You may also find you’re forwarded to another department, where those professionals want a summary of the items that haven’t yet been paid.
If the account still isn’t paid over an extended period of time, it will then become necessary to turn the bill over to collections. A statement of account can be used to detail exactly what is owed as it’s turned over to the third-party service that will be attempting to collect. You’ll also need to tack on interest for the overdue payments, as outlined in your invoice or the initial contract you signed with the customer. If you ever have to take someone to court, a detailed statement of all transactions will be essential.
Electronic Statements of Account
Customers are increasingly relying on electronic communications for everything, including bills and bank statements. You can email your statement of account to every customer on the designated date, and chances are they’ll be happy with that. However, some businesses have found it more effective to set up an online portal. All regular customers will be given the opportunity to set up a user name and password. They can log in as often as they want to access updated account information, request products or services, get help with an issue and more.
The biggest negative aspect to a portal approach is that it requires extra effort on the customer’s end to set up a profile and remember to log in. If you arrange things this way, it may help to make sure customers will be alerted whenever a new item is posted. If this isn’t possible, an email-based electronic approach to statements of account may work better.
Statements of Account Security
Banks realize that identity theft is a real concern for their members, and they take measures to keep information as secure as possible. For businesses, this same courtesy should apply to any statements of account you send to your own customers. Consider the mind of a criminal and make sure that if the bill does end up in the wrong hands, the information included isn’t enough to commit identity theft.
This also applies to any electronic statements you issue. If you email customers to let them know their statements are now available, imagine a third party getting access to that email. Is there sufficient information for an instance of identity fraud? If you have to resend a customer’s password, don’t send the password in email form. Instead, send them a link that they can use to set up a new password and consider requiring identifying information for anyone who needs a reset. You may ask that they know the account holder’s name, street address, mother’s maiden name or some other type of verifier.