Receipts for items bought in person tend to sit in a crumpled heap at the bottom of the handbag, while petrol receipts reside in one of the many nooks and crannies in the car. Only receipts delivered to your premises stand a chance of getting into the file on your desk!
And at the end of the month when you want to reconcile your accounts those pesky little receipts can be quite hard to find! Until you have stopped looking of course, and then they will turn up a couple of months later in exactly the place you thought you’d put them, but they definitely weren’t there when you needed them!
It is so easy to pick up a bargain with every intention of settling up with the petty cash, but by the time you’ve finished your mad dash around town, scoffed a sandwich and glugged a coffee during your lunch break, when you’ve actually got back to the office getting that receipt into the petty cash tin can easily slip your mind.
Carrying a small zipped purse in your handbag, or keeping a wallet in the car just for these receipts can make a difference. Hopefully the majority of your receipts will make it into this receptacle which will make reconciliation so much easier.
Take some time on a Friday afternoon to gather up all receipts for purchases made during the week and record them through petty cash or expenses. This way if one or two have gone astray you may have a better chance of remembering where they are.
Half the battle with keeping accounts records up-to-date is knowing where your paperwork is!
Decide what a reasonable amount of time is for your customers to make payment. Most companies will choose either 30 days from invoice date or the end of the following month, but some may go with as few as 7 days or as many as 60 days.
Decide how your customers can pay you, BACS is usually the preferred method these days, but most companies still accept cheques, and Paypal is increasing in popularity too.
Most importantly you need to add your payment terms and accepted payment method to your invoice template so they are sent to your customer every time you send an invoice. You need to make it as easy as possible for your customer to make payment, because if your customer has to go hunting for your payment details then your invoice will go straight to the bottom of the pile!
Once you have set your terms think about how you will inform your new customer about them. The easiest way to do this is to create a Credit Agreement document. This document will outline your payment terms and accepted methods of payment, it will also contain information about any discounts you will give to your customer, and make statements of fact, such as: All goods will remain the property of [your business] until payment in full has been received.
Your Credit Agreement should also include consequences of late payment, for example, you will exercise your right to charge interest on overdue invoices at the current recommended rate, you will pursue outstanding monies through the courts, if you have to take a customer to court then all future purchases will require payment in advance of goods being sent.
Create space for both parties to sign and date. Easy!
Invoices received from suppliers can be a little more difficult to organise. They each look different, the invoice numbers are in different formats and even the paper they are printed on can be different sizes and thicknesses making any file full of purchase invoices rather messy to look through.
There are several ways to organise them which will be dependent on the software you use to record them and how many you receive each month.
For low numbers of invoices you could use an A-Z divider in a lever arch file and file all invoices alphabetically throughout the whole year in one file. With this method when searching for an invoice that is several months old, you will just need to look under the correct letter to find the current year’s invoices for that customer. If you add the latest invoice to the top every time the invoices will also be filed by date so you will be able to easily find the one you are looking for.
If you are processing a larger number of invoices each month, you may need an entire file for each month, or maybe 2-3 months. In this instance keeping the invoices filed by month and then alphabetically could be more suitable. With this method when searching for an invoice that is several months old, you will need to know the date of the invoice. This information will be available on your accounts software.
For much larger numbers of invoices, that fill several files each month it could be more sensible to assign each invoice a reference number. You can purchase sequential number stamps which can be stamped onto each invoice and recorded as a reference in your accounts software when you record the purchase invoice – some accounts packages will handle this extra piece of information better than others so please check the capabilities of your chosen software before proceeding.
With this method, when trying to find an invoice that is several months old, you will need to find the assigned reference number in your accounts software first, once you have that number it is very quick to find the correct invoice in the file as they are all numbered sequentially and should be filed as such, with the lowest number at the back of the file and the highest number on top.
Another benefit for a sequential system is that it is much easier to see if an invoice has been removed from the file, and equally if an invoice is discovered in the wrong place it is easy to identify where it belongs and to also confirm on the system if it has been processed already.
In this modern age we should all be aiming for the “paperless” office, so if you only receive a small number of purchase invoices each month and most of them arrive electronically, don’t print them off! You can create identical filing systems as described above for your computer files instead of physical files. And ones that arrive through the post can be scanned in to the computer and added to this filing system and the original recycled, keeping your physical paperwork to a minimum.
and when they happen. The bank reconciliation checks that you have accounted for all transactions. Anything that shows on your bank reconciliation that isn’t in your accounts should have corresponding paperwork that has been overlooked. Anything that is in your accounts but does not show on your bank statement should be investigated.
There is a reason that larger companies “close down” their accounts each month. By going through an exercise of making sure that all invoices, purchases and expenses have been added to their accounts system and then checking those transactions against their bank statement they are then able to generate reports on vital information about the health of their business and to create a cashflow forecast for the coming month. This is something that every business should be doing, not just larger ones!
The reports generated will include:
Also known as the Aged Creditors Report or Aged Receivables Report. This is a list of all invoices that have not yet been paid. Usually the report is split into periods or months, which shows what is currently unpaid but not overdue, and then what was due to be paid during the last month, and the previous month and finally anything older. These customers can then be contacted to request payment be made.
Also known as the Aged Debtors Report or Aged Payables Report. This is a list of all purchases that have not yet been paid. Again it will usually be split into periods or months. With this report you will know which of your suppliers need to be paid during the next month.
It is important to know if any cheques have been raised but not yet cleared the bank. Your supplier will have up to six months to cash a cheque so to avoid any nasty surprises you need to know which cheques remain uncashed as you move into the next month.
When you have all of the above information you can create your cashflow forecast. This is basically a summary of how much money you have in the bank, how much money you are expecting to receive and how much you need to pay out over the course of the month. This will then give you your available funds so you know how much money you can afford to spend, regardless of what is currently sitting in your bank account.
How often should you reconcile the bank?
It depends on the size of your business and how many transactions you have. Larger firms will reconcile every day, some businesses once a week and others once a month. It is important that it is done at least once a month, if you leave it any longer it will become more difficult to track errors.
1. Invoice numbers must be unique, sequential and shown on all invoices. I would always recommend using an accounts package to raise your invoices.
2. Payment terms must be stated clearly on your invoices along with the payment due date so your customer knows when you are expecting to receive payment.
3. Payment options must be stated on your invoice, i.e. how can your customer make payment? You should offer several different methods of payment to make it as easy as possible for your customer to pay you.
4. Once you have sent an invoice to a customer do not delete it if your customer changes their mind, or if there is an error that needs correcting as this will cause confusion later on. Instead raise a credit note to show how the error has been corrected, or to cancel the invoice completely.
5. If your customer sends you a purchase order number you should include it on your invoice to make their job easier when arranging payment to you.
6. If you are offering a discount show the reduction on your invoices, don’t just lower the price. This way your customer knows they are getting a good deal, and when they tell others about your prices they know how much you usually charge.
7. Raise invoices within 3 days of fulfilling the order and send out immediately. Any delay in billing your customer will delay when you receive payment.
8. Invest in an accountancy package that will look after your invoices for you. It may seem like a hassle to set up, but once in place it will save time. An accountancy package will also let you know which invoices have not yet been paid so you can speak with your customers about them.
9. Clearly list what you are charging for so your client understands what they are paying for. A breakdown of your products/services will be understood more readily than a single line item for the complete cost of a job.
10. Invoices must show your contact information; name, address, phone number, email address. You need to make it easy for your customer to contact you if there are any problems.
Jamie has spent many years working in administrative roles, she has also spent time as a stay at home mum and now loves the flexibility of working from her home office and being available for her family whenever they need her.