Every credit note that your business raises could be having an adverse impact on your cash flow.
Customers who are waiting for a credit note are unlikely to pay you. It may be that you’ve sent them a bill for hundreds or even thousands of pounds and the mistake is only for a small amount. They’re probably going to withhold payment for the entire amount.
In today’s tough trading environment firms are looking for any opportunity to improve cash flow. Which means that “we’re waiting for a credit note” becomes a great excuse for not paying your invoice, even if it’s past due.
Every invoice that goes out should be correct
Invoicing errors happen. The price or quantity could be wrong. It might be addressed incorrectly. The discount could be calculated incorrectly. The more invoices you raise, the higher the chances of a slip-up occurring.
But that doesn’t mean you shouldn’t try to improve your processes to make it less likely to happen. If you produce a relatively large number of credit notes to correct the same type of error, it’s possible that there’s a problem with your systems. It could be repeated human error or a glitch in your software. Whatever it is, it ought to be sorted out.
Dealing with the causes of invoicing problems will take some time but it’s usually a worthwhile investment. You might also uncover deeper problems which could be losing you money, such as inaccurate pricing.
Credit notes are expensive to produce
Another negative impact on your business is the cost of raising credits. This reduces your profits by effectively increasing the cost of a sale. Processing the request for a credit, investigating the error and making the necessary correction all take up precious time.
Many firms have a management approval process for credit notes. This is a wise control but it uses up yet more time, often of more senior and more expensive staff.
Making a significant reduction in the volume of credit notes will cut the time given over to processing them. This will free up time for more productive work by your staff.