What are invoice receivables?

Invoice receivables are legally enforceable claims for payment by a business for goods supplied and/or services provided, for which they are awaiting payment.

Usually these are in the form of invoices raised by a business and sent to the customer for payment within an agreed timeframe. This timeframe can vary from business to business, but if payment comes late or doesn’t appear at all then this can cause problems.

Accounts receivable is another common name for same thing. Some businesses prefer to refer to accounts receivable, others prefer invoice receivables – but they amount to the same section of business accounts.

Whichever term you choose to use, knowing how the invoicing process should work and what to do if it breaks down is useful.

What is the accounts payable and receivable process?

The accounting process for your business plays a vital role in day-to-day operations. It is what forms the basis of your business cash flow cycle. Your accounts payable and accounts receivable are two key areas which you will need to keep tight control over:

• Invoice/accounts payable consists of money which is owed to your suppliers or service providers. These can be considered liabilities, as you will need to pay these invoices.
• Invoice/accounts receivable consists of money that your clients or customers need to pay you, as you have provided goods or services on credit.

Good bookkeeping and efficient accounting will allow you to maintain an accurate view of your business’ financial health.

Preparing and processing your accounts payable on time means you can be fully aware of what money will be coming out of your account for the month. Similarly, keeping on top of what money your business is owed and sending out invoices on time will help ensure your cash flow actually flows.

actually flows.

When do you receive an invoice?

When you’ve made use of a supplier or a service, you will typically receive an invoice within 24 to 48 hours after a service has been carried out or goods have been confirmed to be received. You can then process an electronic payment in line with the amount you owe on or before the date stated on the invoice.

There may be times where you need to dispute the amount, like if only a portion of the goods end up being delivered. You can raise this with the business who sent the invoice and ask for them to send an amendment.

How does accounts receivable work?

An entry within your accounts receivable will be logged every time a customer or client orders goods or services from your business on credit. This means that they will pay at a later date, usually after they have received what was ordered.

This is technically a line of credit that you have extended, allowing customers to purchase now and pay later. You will eventually send an invoice in order to recover the money you are owed. The details you should include are:

• Your business details, including a unique identification number
• The details of the customer or client who the invoice belongs to
• The goods or services provided in an itemised list with dates
• The total amount payable to your business, including VAT amount if applicable
• Account details of your business
• The date of the invoice and when the invoice is due to be paid by

When should I send an invoice?

Getting the right timing for sending your invoices is important. You need to be sure that the services have been carried out or goods have been delivered before issuing an invoice. If you issue an invoice too soon, you could run into problems if there is a last-minute cancellation.

Keep accurate records of your sales, and when they’ve been completed it will help you to plan out sending your invoices. If your clients or customers are left waiting for invoices to be received, it could have a knock-on effect. This is because payment can typically be made up to the last day of the agreed timeframe. If you forget to send the invoice promptly, there may be a delay in receiving payment.

How long will it take for an invoice to get paid?

As the business sending out the invoice, you will decide how long a customer will get before they’re required to pay an invoice. You will need include a date an invoice needs paying by, or an amount of time from when an invoice is sent.

Many businesses will choose somewhere between a few weeks to a month in order to keep a tighter control of their accounting process.

As the outstanding amount on an invoice represents a legal obligation to pay an amount to a business, accounts receivable are recorded as assets on balance sheets. As these are considered current assets, the balance of an invoice is due from a debtor within the year.

Despite the legal obligation, some businesses can sometimes find it difficult to get customers and clients to pay these on time. This is why it is crucial that you keep a good record of your accounts receivable invoices. If an invoice has lapsed, you can track down which customer still needs to pay and contact them for payment as soon as possible.

How can I recover money lost from unpaid invoices?

Having a mounting number of unpaid invoices can be incredibly frustrating for a business. It can create a shortfall within your finances, as well as a discrepancy between your sales figures and how much is in your business account.

“1 in 10 SMEs found that over 75% of their accounts receivable were being paid behind schedule. When people fall behind on paying their invoices, businesses can really start to feel the pressure and cash flow can run into serious challenges. With the average invoice taking twice as long to be paid than it should, businesses will often seek out assistance at some stage.” – Ian Bath, Corporate Sales Director at Nucleus 

If your business is struggling to get outstanding invoices paid and you’ve tried to communicate this to your debtors, then it can be worth looking into ways you can recover the amounts owed. This way, you can minimise the negative impact the missing revenue may have on your business.

Invoice Finance is a financial product which is commonly used to unlock the cash businesses have tied up in unpaid invoices. This is a form of asset-based lending. In this case, the assets are the amounts of money owed by debtors to your business. The amount of cash which can be borrowed is calculated based on your invoice receivables which are yet to be paid.

Rather than being deemed typical lending, it is seen as more of an asset purchase as a business can raise money against its debtors. There are two types of invoice finance which many businesses turn to: invoice discounting and invoice factoring.

Invoice discounting

Businesses can use invoice discounting by effectively selling lenders the outstanding invoices they have for a payment equivalent. This is an asset-based financial product, as the assets within your accounts receivable are being exchanged for the loaned amount.

A business using invoice discounting will continue to handle their own sales ledger, managing the use of credit with customers and collecting invoices. This means that the business relationships with customers aren’t affected, as the invoice finance company isn’t directly getting involved.

Invoice factoring

When businesses choose to use invoice factoring, this usually involves the finance provider stepping in to take over management of a business’ sales ledger. This can be a useful option if your invoices are taking upwards of double the agreed terms to be repaid.

Similar to invoice discounting, outstanding invoices are used as assets which a loaned amount is measured against. The key difference is that the invoice finance provider will deal with the collection of invoices directly.

This can be useful when a business wants to repair their damaged business cash flow, as well as freeing up time spent chasing outstanding invoices. A potential downside to this is that your business relationship with customers could be strained as they’ll be dealing with the lender rather than you.

Can invoice finance help your business?

SMEs often find that invoice finance provides them with a lifeline when their business cash flow breaks down. Even a handful of lapsed invoices can prove problematic, especially they include larger orders which haven’t been paid.

Have your customers started to slip and pay their invoices late? Get in contact with us and we can discuss whether invoice finance would work for your business. The right type of invoice finance can get your business cash flow moving smoothly and open up new opportunities. You can also see how we’ve successfully helped other businesses with invoice finance in the past.