Your objective is profit, not sales volume. Do what it takes to get the customers' cash into your bank account - fast!

So, what does it take? The sections that follow give more details on these points.

What are the benefits of using electronic invoicing?

  • Reduce Days Sales Outstanding (DSO). E-invoicing helps retrieve money more quickly from your customers, by reducing the amount of time wasted whilst your invoice is in the post. The average DSO for a business is between 40 and 60 days, but businesses which have used e-invoicing have reported a fall in their average DSO.
  • Reduced print and postage costs. If invoices are sent electronically, money can be saved on the cost of paper, print cartridges, envelopes and postage.
  • Reduced requirement for sending out copy invoices. The direct delivery of invoices to the customer's inbox minimises the likelihood of them claiming they have not received them or that they must be lost in the post. Time delays are minimised, as copies can be resent and received by them immediately.
  • Faster dispute resolution. The sooner your customer receives your invoice, the earlier they can alert you to any concerns they have about their account or the amount due.

Issuing your invoices electronically

It is advisable to state your intention to invoice customers electronically in your contract and to ensure that they are able to receive communication by this means. For existing customers, write to them informing them of the change to your terms and conditions, and seek their agreement. Also verify the correct email address for the person responsible for making payments.

It is important to protect the authenticity and integrity of the invoice when sending it electronically. Therefore, your invoice should either be written into the email itself, attached as a protected word file or sent as a pdf document. Keep the wording and lay out the same as previous paper invoices to avoid confusion and, if possible, use delivery tracking to check that your email has arrived safely.

Print off and keep a hard copy of all invoices you send electronically as a back up.

HM Customs and Excise have issued a useful guide to Electronic Invoicing on their website.


There is also a wide range of software available offering a more sophisticated means of invoicing your customers electronically. Software packages should ensure the secure delivery of your invoices, as they use encryption which prevents the email being read by a non-intended recipient.

Is email delivery of electronic invoices legally binding?

Yes. The Law does not distinguish between modes or methods of delivery.

Receiving payments by electronic funds transfer

BACS is the organisation established and owned by the major UK banks to provide the facility for transferring funds between them to settle payments.

An electronic file of payments is produced, either by you or a third party acting on your behalf, and is transmitted to BACS, which undertakes the transfer of funds.

This method of transferring money is referred to as 'Direct Credit', and can also be used for paying wages, pensions and employee expenses, amongst other transactions.

Benefits of receiving payment by electronic funds transfer

  • Can reduce late payment, as your customers' payments are automatically deposited in your account on the agreed date;
  • Money is delivered directly into your bank account, meaning you don't have to wait up to a week for cheques to clear. Cleared funds are available to you straight away;
  • Reduces the chance of cheques being lost or stolen in the post;
  • Saves you the trouble of depositing cheques at your bank.

Arranging for customers to pay by electronic funds transfer

Provided you and your customers have bank accounts, it should be possible for you to arrange for payments to be made by direct credit.

You should write to your customers to advise them that you wish to receive future payments in this way and provide them with your bank details.

Of course, it may be the case that your customer would prefer to continue making payments in the way that they have done to date.

Having appropriate financing and an accounting system in place can often be the difference between success and failure of a business.

The wrong type/mix of finance will result in a mis matched balance sheet with strain being placed on the business. Lack of control of working capital can expose the business to unnecessary and avoidable risks. It is vital companies control this requirement and use accounting systems to help predict when shortfalls may occur. One of the risks is late payment both when paying (reputation risk and future cashflow) and receiving (cashflow).

(Working capital = Inventory days + receivable days - payable days)

The list below highlights areas when the accounting system can help highlight late payment and its impact:-


Revise your cashflow to monitor the effect of late payment. What impact does this have on future working capital requirements? Use the planning/cashflow/projection software to highlight the work in progress and to avoid losing control of the business Use planning/cashflow/projection software to highlight and stop overtrading and/or unprofitable trading


  1. Use aged creditors to highlight when your creditors need paying
  2. Record any interest paid on late payment to monitor the cost
  3. Keep a record of creditor days
  4. Keep track of key suppliers (maintain relationship, speed of supply and prices) - this impacts on inventory, creditors, (working capital)


  1. Use aged debtors to highlight when money may be received
  2. Record any interest received
  3. Set credit limits and review these for any late payers
  4. Keep a record of debtor days
  5. Flag any overdue debtor and put a stop on the account
  6. Keep track of key debtors/customers (review trading patterns)
  7. Investigate any unpaid invoice from a batch or any dispute quickly
  • The DSO result
  • The cash collected during the month versus the Cash Target set
  • An Aged Debt Analysis, showing largest accounts first.
  • Send a one page Debtors Summary at month end, comparing actual results with previous month and with any budgets made, to all managers and directors for action on major problems and trends.

This is a good prompt for talking to key customers about their payment dates.

If you improve the Debtors asset gradually, month after month, the faster cash soon shows in a healthier balance sheet.

A useful calculation is to compare the cost of the resources needed against the benefits of the extra cash being produced.

See the Quick step guide for a step by step approach to these procedures.

How to calculate your Days Sales Outstanding (DSO)

Your current days sales outstanding (DSO) is calculated by dividing the total amount owed to you by your sales per day. Your sales per day is calculated by dividing your annual turnover on credit terms by 365, the number of days in the year. e.g. To calculate the Sales per Day (when annual turnover is £1,000,000): £1,000,000 divided by 365 equals 2739.7

To calculate DSO (based on example above and when amount owed is £10,000)

£10,000 divided by 2,739.7 equals 3.65
Your reduced, improved DSO is calculated by multiplying the total amount owed to you by the percentage improvement in your collections activity (say 10 to 20%) and then taking the resultant figure away from the total amount owed to you before repeating the above calculation.
The increase in your cash flow is calculated by multiplying the total amount owed to you by the percentage improvement in your collections activity.
The reduction in the cost of your borrowing is calculated by multiplying the increase in your cash flow, above, by the percentage interest rate for borrowing money (say 5%).


If customers ignore reminders, it could be because they are waiting for a significant threat; using a third party can have a stirring effect.

Collection Agents

They work on a 'no collection - no fee' basis and charge 5 - 15% of amounts collected, depending on complexity and volume. Good ones collect over 80% in the first month because of their third-party effect and full-time effort. Send all undisputed debts below a certain value to an agency after a certain time. This releases your own resources to collect large, current amounts from active accounts.

This Debt Collection Agent Checklist sets out the key information which the credit manager should have to hand when appointing a debt collection agency

Non-Court Action

Going to court is not the only way of resolving a dispute. There are other options such as negotiation, mediation, conciliation or arbitration. The civil legal advice website has a number of articles as alternatives to court.


They issue powerful letters in a short space of time, charging a pre-agreed fee. Find a firm specialising in debt collection, not just any solicitor.

Statutory Demands

can be sent by the seller, collection agent or solicitors promising an application to court for the formal Winding-Up of the business if payment is not made within 21 days. Alternatively, the seller can obtain a court order for the debt.

Court Action

Solicitors are essential for High Court actions but not county court. Fees are higher in the more effective High Court. Before suing, check that there is no known dispute, no other useful steps are possible and the customer has the means to settle.

If the seller decides to begin legal proceedings it is advisable that they provide the solicitor with all the necessary information pertaining to the debt in a clear and succinct format from the outset. The seller may use this Form of instruction to solicitors for this purpose.

The Form of instruction to solicitors is designed to ensure that the seller avoids the inaccuracies that can undermine a claim such as:

  • The need to ensure that the name under which the seller is suing matches up exactly with the name of the company or trading division with which the customer originally contracted.
  • The need to identify the status of the debtor, i.e. whether they are trading as a sole proprietor, as a firm or as a company. This is vital to ensure that the proceedings are being taken against the right party/individual.
  • The need to give essential information about the debt itself, such as the amount due, whether it has arisen as a result of goods sold and delivered, services rendered or work done and materials supplied. It is always useful for the solicitor to be given copies of invoices and details of the dates, numbers and payments due under each.

The Court Service provides free information sheets and leaflets on the debt recovery procedures available through a county court.

NOTE: Legal procedures in Scotland and Northern Ireland are different from those in England and Wales. Further information can be obtained from the appropriate Sheriff Court in Scotland or county court in Northern Ireland.