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GST Compliant Invoices – What, Why & How!
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Challenges Faced by Small and Medium Business Enterprises and Entrepreneur in Invoicing
Invoices are the immanent part of any Businesses Enterprises and for a Freelancer. It’s tedious, yet the necessary function of the business. Invoice processing is a huge task, especially if you are using the legacy method(Manual Invoicing). Surprisingly most businesses around the world still practice manual invoicing.
- What’s an Invoice is?
It’s a document issued by the Seller to the Purchaser which is legally showcased about the Product/Services.
- What does it Include?
Invoice Number, Invoice Date, Name and Addresses of the Supplier, Contact Name of the Purchaser, Product/Service Description, Price, Taxable amount and the Payment Terms.
- Why do we need Invoice?
We need Invoice for Getting Paid, Establishing Legal Rights, Audit Evidence, An Overview of Services you’ve provided, Marketing and Record Keeping.
What are the Challenges in producing the Invoice?
There are two types of Invoicing Procedure followed by the Business Enterprises and Freelancers
- Paper Invoicing(Manual Invoicing)
- Automated Invoicing
a) Paper Invoicing (Manual Invoicing)
It is important to properly comprehend the steps involved in Paper Invoicing for rectifying the errors and improve the hidden opportunities present in the process many of the Companies might follow various steps, but the basic steps remains same. Here are the list of various steps associated with the manual invoicing.
Suppliers would generate and print invoices and mail them to you, the buyer. Once you receive it, invoices need to be sorted and sent to the Account Payable (AP) department. Typically, AP staff maintain the Key in the into the System:
The Received invoices need to be verified to be verified to ensure that the payment terms are correct and the payments are accurate. Account payable team staff usually checks for errors such a missing the Purchase order numbers, Incorrect account numbers, missing field treatments, etc. They are also validated to check if the billed amount is the same as the number of goods/ Services procured.
Most often, invoices need to be approved by one or more higher authorities prior to payment. Invoices should be routed to the appropriate personnel whose approval might be required.
The AP team should record the various expenses in the general ledger of the company and then Invoices are stored and archived in different files. This needs to be done very carefully as these invoices can be retrieved in the future if needed.
5.Payment of Invoices
When all the required approvals have been received, the payment is processed by the AP system. The payment might be made through paper check or Automated Clearing House (ACH).
Major Challenges in Paper Invoicing
Since the manual work is involved there are more chances of errors occurring which might be caused while entering the data, paying the same invoice twice, providing the service for the unpaid invoices, paying the incorrect amount, etc.
2. It is Labor Intensive
Apart from spending the huge amount of time on the entering the data manually, a cross-reference of the data entered becomes necessary. This takes up quite a bit of time. Depending on the size of the firm there might be thousands or even millions of such invoices being sent around the firm. So it’s the waste of time for all the personnel involved.
3. Monitoring can be painful
Paper invoices get lost very easily. Unless paper invoices are files or stored in the right place, there are chances of them getting lost in the sea of other papers. Monitoring each and every invoice is a tough task and AP personnel usually end up spending too much time tackling queries from suppliers about payment status.
Duplicate invoices are the biggest challenge for any company dealing with paper invoices. This mistake, in turn, can lead to higher costs and wastage of unnecessary time.
5.Missing or Incorrect data
Incorrect or missing data in the manual invoice may be difficult to identify. It is overcome by using highly efficient Invoice Management Systems.
Using the highly efficient Invoice managing systems can solve the problems facing in the Manual invoicing.
b)Automated Invoicing(Computer Generated)
Automation of the invoicing is easy and accurate as compared to that of manual invoicing, there some steps which are common to every Invoicing System, they are as follows:
1.Installing the Invoice Management software
Native application of the invoice managing software should be installed on the local computer
2.Storing the Products/Services details
Details of the products/services should be recorded in the Local System and the category of details of the Products should be same for all the products(Product/Service Number, Description, Price, Taxable Amount, HSN Code, etc.).
3.Collecting customer details
Maintaining the details of the customer or the Purchaser which results in the growth of your database. A huge amount of memory space is consumed. In the very large business enterprises, there are millions of Purchasers, where all the details corresponding to the Customers should be recorded.
4.Issuing the Invoice
The invoice should be issued for the products/services that the Purchaser corresponds, Invoice should be the legal document that Purchaser should get for purchasing the Products/Services.
5.Payment Collection and Record Keeping
Payment should be collected by the seller for the Invoiced amount either in the form of cash, Debit/Credit Cards, or Online Transactions, etc. Invoices should be stored safely because it should be retrieved in the future if needed
6.Flexible billing frequency
Businesses with a recurring billing model need an effective subscription billing solution that will enable them to receive recurring payments, reconcile and manage them at any frequency.
7. Failed transactions management
Recognizing failed transactions and proving a way to automatically inform users of them helps to save time and makes a business more efficient. With many users subscribing to your service, it will be inefficient to go through transactions manually to approve or review them.
Challenges Facing the Automation of Invoice Management
1.Installing of Native Application which mandatory in many of the Invoicing Systems
2. Filling the details of the Customer and Items.
3. Maintaining the Customer and Item log
4.Recording the Invoice for the auditing
5. A Businessman can have one or more Businesses and maintaining all the Businesses in a single system is Complicated
6. Keeping Track of Credit/Debit Notes is not that easy
7. Keeping track of Paid, Unpaid, Due Payments are difficult
Solutions for the Automation of Invoicing System
1. Make it Cloud Based
One of the biggest document management system problems is filing and keeping track of records. Both paper-based and electronic systems have their individual storage and collaboration challenges.
A cloud-based smart document solution also allows clients to comment directly on invoices if they have any questions or concerns. Billing can quickly collaborate with sales to make changes, all in the same platform, from any Internet-enabled device.
2. Reduce the Steps required to pay
Users will not recommend if the system has too many complicated steps for payments and cancellation, etc.
3. Keep a Content Library
A content library with templates can reduce the time it takes to build invoices. With templates and pre-built content blocks, you won’t have to start from scratch every time you create a new proposal. Instead of using old documents as templates and overwriting them, put together a fresh proposal in minutes to reduce errors.
4.Integrate your contact information with your invoicing software
This will reduce the problem in gathering the details of the customer and filling out the details to the system
5. Invoicing software should produce the report of each and every module in the Invoicing system
The software should be good enough to produce the report in the desired format which should be made easier for the auditing. Even the Seller should be able to know the complete scenario of the sales and purchase in the day wise, Monthly, Quarterly, Yearly.
The Benefits of going with the automation are
- Processing cost is very low
- Error rates are minimal as compared to manual invoicing
- Manual processing of invoices is time-Consuming, etc.
Creating a paperless Business is not a quick and effortless transition but it will definitely pay off in the long run, helping you to stay competitive and more efficient. The contemporary technologies for managing electronic documents are developing at a fast pace, replacing paper with digital files, just like computers have substituted manual labor. Automation of the invoicing system helps in Income tax filing and GST filing by generating the reports in the desired formats.
Automated invoice process management can help your business grow at a rapid pace by providing high profile advantages. All invoice processing can be tracked and the transactions can be monitored. The invoice preparation process can be monitored at every step. Answering complex queries would become easy and less time-consuming. The system can provide accuracy rates close to 100%, will reduce the overall cost of invoice preparation, and saves valuable time and paper.
Article By: Shreesha M,
(MCA, BIT, Bengaluru)