A guide to the different approaches to billing customers.
Industry approaches to invoicing
One size does not fit all when it comes to invoicing, and industries take different approaches to billing customers. Here is a quick guide to different types of billing by invoice.
Invoicing in the digital industries - web development and design businesses, for example - often use progress invoicing, which involves charging clients incrementally for work completed, since projects can stretch out over many months. Equally, sectors where the items sold are particularly expensive, such as manufacturing, engineering, or aerospace and defence, can opt to spread cost for clients in this way.
The construction sector is particularly well known for using progress invoicing because most of its projects are on a large scale and spread over a long period. Construction also uses a lot of sub-contractors and these third-party costs must be recorded accurately. The total time worked by all concerned is needed to break down costs for clients in the final analysis.
A collective invoice is a summary that includes several orders or pieces of work in one document. It’s commonly used for customers who make regular orders for smaller amounts, and is a time-efficient and cost-effective approach to billing and payment for both vendor and client.
Wholesale is a good example - wholesalers often issue collective invoices on a monthly basis, even though their customers are making frequent purchases throughout that 30-day period. Elsewhere, businesses that outsource a lot, making a number of small orders worth small amounts, often prefer being invoiced on a collective basis to save time and money processing payments. It can also work well with long-term supply agreements, such as private medical or dental providers invoicing either the health insurance firm or the patient direct for a number of services supplied.
Recurring billing sees invoices generated on a cyclical basis typically during the lifetime of a contract. Longer-term rental agreements, such as equipment hire, are often charged this way, for example. Digital and advertising agencies doing ongoing work for a client also sometimes use recurring invoicing.
Subscription invoicing charges customers for goods or services on a pre-arranged schedule. In the day-to-day this can be seen with food box delivery firms, software providers, gym memberships, and online streaming services. Often, these are pre-billed, with people receiving an invoice and paying automatically at the start of the billing cycle. Club and society memberships, as well as regular charity donations, are other examples where subscription invoicing is the preferred model. Some accountancy firms are also beginning to use subscription charges rather than the traditional approach of invoicing clients annually or monthly.
Invoices in the utility and mobile phone sectors are strictly governed by regulators who insist providers issue clear, accurate bills to customers. Consumers usually sign up to an agreed package or tariff, but it is still metered billing, where individuals can be charged extra for any add-ons used during a given period. The invoices issued by these firms must show how many units have been used, the charge per unit, and the total cost for services used.
Interested in collecting payments by Direct Debit?
Find out if online Direct Debit is right for your business