Billing errors lead to delayed payments, lost revenue, and damaged customer trust. Discover the seven most common billing errors and how to prevent them.
The number 1 reason small businesses fail is cash flow problems. Cash flow is measured in the ability to pay your bills. But before you pay your bills, you must get paid.
And many small businesses don’t get paid on time because of billing inefficiencies. Inefficient billing raises the incidence of billing errors that delay payment and can prejudice a company of revenue and compromise its relationship with customers.
What are the most common billing errors, and how do you prevent them?
Let’s find out.
What is considered a billing error?
A billing error refers to an invoicing mistake that results in undercharges, overcharges, duplicate charges, or charges for goods not supplied or services not rendered. Incorrect taxes and wrong customer details also count as billing mistakes.
Billing mistakes can happen at any stage of the billing process - data entry, discount or tax rate calculation, invoice generation, and payment processing. Complex billing systems, manual intervention, poor training, and fatigue are usually the causes.
What is the impact of billing errors?
Billing errors can cause severe harm to your business. As well as causing revenue leakages, these present reputational and compliance risks.
Underbilling, for example, reduces your revenue. It means you are giving away product for free, which reduces your profit and makes it hard to grow.
Overbilling and billing for products not supplied aggravates your customers, which can invite lawsuits and cause them to take their business elsewhere.
Errors in tax calculation raise tax evasion issues that can put you in the crosshairs of tax authorities. You can lose your business licence or be forced to pay hefty fines.
What are some of the most common billing errors?
6 Common billing mistakes for businesses.
1. Data entry and calculation errors.
An invoice is a timestamped business document that itemises transactions between a business and a customer. It shows the total amount that the customer must pay for products or services supplied, including the taxes factored and discounts extended.
To prepare the invoice, you must correctly enter data the requisite data into a spreadsheet or invoicing software to calculate the total amount due. Entering the wrong product code/name, quantity, discount, and taxes means the invoice total will be wrong.
If you have a manual billing process and use calculators, a simple mistake like adding an extra zero or punching the wrong button produces an incorrect invoice total, meaning you either undercharge or overcharge the customer.
2. Using the wrong tax rate.
Some products fall in different tax brackets than others. For example, in Kenya, unprocessed agricultural goods like milk and some grains and agricultural inputs like fertiliser are exempt from VAT. Luxury products attract VAT.
Not charging VAT on products that are not exempt from VAT when you are registered for VAT will mean that you are liable for a fine from the Kenya Revenue Service.
3. Not extending promised discounts.
Not effecting a discount you advertised or have promised a customer is a deceptive marketing practice. Even when you have genuinely forgotten to deduct the discount, you will still come off as clumsy and unprofessional, which is not a great look for any business.
4. Not mentioning a due date.
Every invoice must have a due date. This is the date when the invoice must have been paid. If you don’t clarify the due date on the invoice, the customer may take their time paying, which squeezes your cash flow and makes it hard to meet your financial obligations.
This common mistake can happen with manual billing systems where invoices are typed out or prepared by hand. The person writing the invoice may simply forget to add the important details of a due date.
5. Neglecting to send an invoice.
Merely preparing an invoice does not guarantee you will paid. You have to send it and ensure the right people at the customer’s company have confirmed receiving it. You will not get paid if the invoice is still sitting in a tray on your someone’s on its due date.
In many business setups, only specific people can prepare and deliver invoices. They must also carry a duplicate that the person who receives the invoice must sign and stamp to confirm receipt.
6. Billing the wrong customer.
If you don’t send an invoice, you will not get paid. Neither will if you bill and send the invoice to the wrong customer. Most times, this is an innocent mistake that happens when a person is tired from a long day’s work, but it is still just as damaging.
The problem is that you seldom bill just another random entity you don’t normally do business with. It will usually be another of your customers.
While they can accept it as a genuine mistake, they may wonder if you would have corrected the mistake had it not been their vigilance that exposed the mistake. So, again, this will reflect very poorly on your business.
Meanwhile, you have still not been paid. While you will eventually bill the right customer, you will not receive the payment when you should have, which strains your cash flow.
7. Not following up on unpaid invoices.
Suppose you have sent an accurate invoice to the right customer on time. They may still not pay on time. Or their method of payment may fail for some reason.
Although a costly exercise in itself, it is a costlier mistake not to follow up on unpaid invoices. And the longer you take before you follow up on the unpaid invoice, the harder it gets. The task will get buried among others that are sure to pile up.
We have proven that billing errors can cost your business in profound ways. We have also established that most errors happen when using manual billing systems. And resolving these mistakes doesn’t come without costs.
So, can these billing errors be avoided, and if so, how?
How automation can prevent billing errors from happening.
Billing errors are best avoided because you can’t solve them without taking a hit on your reputation and your cash flow. You must find ways to prevent them from happening in the first place.
The best way to prevent billing errors is to automate your entire billing workflow. There is software that can collect billing data from your other systems and consolidate it in one place where invoices are automatically generated and sent out at scheduled times.
The best billing automation software goes a step further to automatically charge customers and process payments at pre-agreed frequencies.
If a payment fails because the customer’s bank account was overdrawn or for some other reason, the billing software will schedule periodic reminders to be sent to the concerned customers.
Automate your billing system with Intasend and get paid on time.
A more effective fix for cash flow challenges that dog small businesses is pivoting to a recurring payments or subscription model. This is also possible with automated billing software like we offer at Intasend.
With a recurring revenue model, you will seek your regular customers' approval to automatically charge their supplied payment methods at pre-agreed intervals, usually monthly.
This removes the need to seek their approval every time a payment is due and solves the perennial problem of delayed payments because invoices are paid automatically. You also enjoy more predictable revenue, making it easy to make decisions and plan more confidently.
Sign up to get started with automatic billing and enjoy faster payments and reduced administrative overhead. Want to sample the software first? Request a demo here.
