How to Set Up a Small Business Invoicing System

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The invoicing system is the heart of the business's accounts receivables. Invoices are prepared based on products or services sold. Data from the invoice correspond to sales journals, customers' account records, accounts receivable balances and cash account journals, among other business records.

Electronic and Manual

Software systems used for invoicing require the small business to enter initial data before printing invoices. Each system demands different variables and will prompt the user about what is needed. The system will then electronically integrate the data into accounts receivable. By contrast, when setting up a manual system, the small-business owner or bookkeeper decides what is needed and formulates this as part of the accounting system accordingly. Regardless of whether the small business provides services or sells products, one of the preliminary steps in setting up an invoicing system is to determine what to include on the invoice in addition to such basics as contact information.

Numbering System

Each invoice should contain a unique identifying number based either on the chronological order of sales or by customer number. Either way the small-business owner chooses, these unique numbers can be used to reference a particular invoice in the future.

Invoice Body

Under the description section of the invoice, the bookkeeper will want to add itemized information so the customer knows exactly what the invoice documents. For example, an invoice for service that simply states "service call" is too vague for either the customer or small business to use for later reference. However, if the description says something more specific such as "Changed filters; cleaned fans; tested ignition," both the customer and service provider know exactly the work performed. If the charge is per service or by the hour, this detail should be included in the description. When the invoice is for products, include quantities and price per units. This information corresponds with entries in the sales journal.

Credit Terms

Determine the credit terms customers will be offered and include this on the invoice. For example, if payment is expected promptly, the invoice should carry the notation "Net due upon receipt." During the sales process, if the customer was told he would have 30 days to pay, include this as the due date on the invoice.

Bringing It All Together

The invoicing system is complete when it fits the proper place in the accounting process. After invoices have been prepared, it's time to collect accounts receivable. One copy of each invoice is mailed to the customer, and the business retains one copy. The invoiced amount is posted to the customer's account in the sales journal. When payment is received, the amount is deducted from the customer's account in the sales journal and added to the business's cash account. At the end of the month, the small-business owner can review the accounts to note any outstanding invoices and the need to follow up in seeking payment, such as sending a second copy of the invoice marked "past due."