under invoicing

How Does Under Invoicing Work and How to Prevent It

Under invoicing is a dangerous game. It can leave your business open to substantial losses, and it’s something you want to do everything in your power to prevent. This article will talk about under-invoicing, what it is, and how you can stop it from happening in your business. By understanding under-invoicing and taking the necessary precautions, you can keep your company safe from this type of financial disaster!

What is Under Invoicing?

Under invoicing is when the price of a good on an invoice is less than the price paid. It usually happens when either the importer or exporter wants to reduce a tariff or if the buyer or seller wants to lower their profits to pay less taxes. While it may seem harmless, it can potentially lead to significant losses if left unchecked. That’s why you should avoid under-invoicing as much as you can.

How Does Under Invoicing Work?

Now that we know what under-invoicing is, let’s look at how it works. Generally, under-invoicing happens when there is a general desire to underreport income. It’s a complex process involving various methods and strategies, but the end goal is always the same – to reduce costs and avoid paying taxes.

Other Common Invoicing Problems

Under-invoicing can be the implication of various invoicing problems that you can encounter during your payment process. It’s important that you are aware of these invoicing problems to make sure you avoid committing them. Some of the common invoicing problems include:

Poor Timing

Proper invoicing is all about the timing. Sometimes, invoices are sent too early or too late, which can cause several problems like cash flow issues and missed opportunities. In most cases, the best time to send an invoice is right after you finish working on a project. Doing so ensures that the job is fresh in your mind and that you can list all of the tasks you’ve accomplished. Failing to send your invoice at the right time will only result in complications that you’d want to avoid. So make sure you send your invoices on time. 

Incorrect Details

Sometimes, the issue lies in the details. Invoices filled with incorrect details can be difficult to process and may lead to missed payments or other financial mishaps. Therefore, you want to make sure that your invoices are as accurate as possible and that all relevant details are included. This will help to ensure a smooth and easy payment process.

Lack of Clarity

When you create an invoice, you want to make sure it’s clear and concise. The invoice should be easy to read and understand, with no hidden or confusing information. If the invoice is difficult to decipher, it may cause delays in the payment processor even missed payments altogether.

Duplicate Invoices

Sending two invoices to the same client might result in either you getting paid twice or not getting paid at all. Duplicate invoices can create a lot of confusion and can lead to missed payments or other financial problems. Therefore, you want to make sure that you’re not sending duplicate invoices. In addition, check the invoices you receive from suppliers to ensure that there are no duplicates.

Failing to Itemize Your Charges

When invoicing, the last thing you want is your clients complaining about the items you listed on your invoice. So, make sure to itemize your charges and list all relevant details! Clients may not be able to understand your invoices if you don’t itemize your charges. This can potentially result in client confusion and missed payments. 

Not Including Terms In Your Invoice

Another invoicing mistake is not including terms in your invoice.  This can lead to misunderstandings and missed payments. The terms set the parameters of your invoice and make sure the agreement that you’ve made during the negotiation process is administered. That’s why when you create your invoice, be sure to include the payment terms so that there is no confusion or misunderstanding between you and your client.

How to Prevent Under Invoicing

At this point, you are already aware that under-invoicing is merely one of the many issues plaguing the entire invoicing process. By preventing the possibility of under-invoicing, you can also prevent other invoicing issues from occurring. Remember that it’s easier to understand some common invoicing errors than to avoid them completely. Fortunately, you can use the following tips and tricks to reduce your risk of under-invoicing or other common invoicing pitfalls.

Create an Invoice Terms and Conditions

When doing business, you’re not only trying to earn a profit but also establishing a relationship with your customer. That’s why it’s a great idea to provide your clients with a general services agreement or sale of goods agreement that outlines exactly what your terms are and how they will be enforced. When creating invoice terms and conditions, you can set out things like:

  • How goods will be shipped
  • When payments are due
  • What to do with late fees
  • Impose penalties when products are late or if payment is late
  • How to handle disputes
  • Expectations about the process of orders.
  • Requirements or guidelines that affect intellectual property
  • Potential milestone payments during the duration of the project
  • Terms and confidentiality regarding provisions of trade secrets

Invoice terms and conditions will manage the relationship between you and your customer. As a result it will also reduce the instances of disputes as both parties will be aware of what to expect and what will happen if they violate these conditions.

Use a Numbering System

Tracking invoices can be challenging, especially if you don’t use a numbering system. However, you can easily track them when you number your invoices and ensure that no invoice is missed or overlooked. You can also use the numbering system to help keep track of payments.

Include All Relevant Information on Your Invoice

As we mentioned earlier, it’s important to itemize your charges and list all relevant details on your invoice. This will help ensure no confusion and that your clients understand what they’re paying for. Remember, the more understandable your invoice is, the more likely your client will pay you on time.

Use a Professional Invoice Template

Sometimes, you don’t have to create your invoice from scratch. When creating your invoices, you should opt for a professional invoice template instead. Not only is it more convenient but it will also save a lot of time and effort on your end. At the same time, it will also help ensure that your invoices look professional and are easy to understand.

Consider Using Incentives

Invoices that aren’t paid on time can seriously disrupt your business’s cash flow opportunities. As someone managing a business, you need those invoices to be paid on time to pay your company’s bills. One of the best ways to encourage timely payments is using an incentive program. These incentives can be in the form of discounts that you can grant to customers who pay their invoices on time, or straight offerings like free shipping. For the duration, it can either be as short as a few days or as long as a month.

Implement a Tracking System

While electronic billing is a practical option, you don’t have to use it if you’re unfamiliar or uncomfortable with it. However, you will still need to develop some system that will help notify you when a bill is due so that you can follow up with your client.

It may seem like a daunting task, but having a tracking system can be as simple as making dates on your calendar when you should be getting paid. If you want something simple with a little bit of technicality, you can use a spreadsheet application to show your past-due invoices.

Whatever method you choose, be sure to utilize something familiar and comfortable. That way, tracking and monitoring invoices will be easier.

Use Automated Payment Processing

Another way to help ensure that your invoices are paid on time is by using automated payment processing. Recurring billing is an excellent payment processing method that can help reduce the time it takes to get paid. Automated payment processing can also avoid the hassle and stress of chasing down payments.

Use ReliaBills

Speaking of recurring billing, you should consider using ReliaBills as your invoicing and payment processing solution. Our system will make sure your invoicing and payment process are top-notch and won’t encounter issues along the way.

ReliaBills offers a simple and easy-to-use platform that will allow you to get paid quickly and easily. Some of ReliaBills’ features include:

  • Easy Invoicing
  • Accurate Estimates
  • Comprehensive Customer Data Management
  • Convenient Installment Billing
  • Effective Recurring Billing
  • Easy Payment Processing 
  • Collection Automation
  • Customer Portal
  • And more!

So what are you waiting for? Create an account and upgrade it to ReliaBills PLUS now! For only $24.95, you’ll get access to all the tools you need to create a convenient and effective automated invoicing and payment processing system.

Wrapping Up

Invoicing is an important part of any business, yet it can be one of the most challenging aspects. By following these tips, you can increase your chances of avoiding under-invoicing and other common invoicing errors. In addition, implementing these strategies will help improve your business’s cash flow and ensure that your clients understand and are happy with their purchases.

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