This week I want to talk about one of the most common bookkeeping mistakes we come across at Ozlop and how to tackle it: confusing statement of accounts with invoicing.
The challenge is that some people wrongly believe that an ‘invoice’ and a ‘statement of account’ are the same thing, when the reality is that they are different in meaning and in purpose.
So, let’s be clear about this: an invoice is a bill and a request for payment, which sets out in detail services provided and the amount owed (including VAT) and when. A ‘statement of account’, provides an overview of all invoices due to a supplier, which should include details of the most recent invoices sent and paid.
Yet, all too often we meet business owners who have confused a statement of account with an invoice or vice versa. The upshot is that they either have neglected to pay a bill which they think has been settled, or they pay it twice because they failed to check the statement against invoices paid.
Just last month we met Claire, a mobile hairdresser, who’s business costs appeared to be spiralling out of control leaving her with too little to live on at the end of the month.
Claire thought her bookkeeping was good, she was on top of her bills and regularly paid suppliers to avoid red letters. Yet, her earnings had begun to slip in recent despite being busier than ever.
When Claire sent her books to Ozlop, we needed all her recent invoices for processing so that she could be sure she was paying the right amount of VAT – which could later be claimed back as a business expense. Claire quickly realised she didn’t have all the invoices from suppliers, but she did have plenty of statements from them and, she said, she had promptly paid these.
It didn’t take long to realise that Claire had confused the statement for an invoice, and there were suppliers she had paid twice and others she had not paid at all.
This was a shock to Claire, who had innocently made a mistake which her suppliers failed to put right.
Yet, the business of paying bills is down to you and if you are dealing with big suppliers it could be some time before they correct your mistakes. If you fail to keep your business finances up to date and a list of who has been paid and when, it won’t be long until some minor errors turn into serious profit drainers.
Luckily for Claire, with help from Ozlop she was quickly able to pinpoint which supplier she had double-paid and was able to arrange a refund. Concerned about making the same mistake twice, Claire has now directed her suppliers to send invoices by email direct to Ozlop so that we can easily process them and she has more time for her business.
If you are interested in learning about how Ozlop can help you stay on top of your costs, please do get in touch for a chat.