While it’s tempting to want to focus on the money coming in to your business – and maximising the opportunity that Amazon presents you – you can’t afford to ignore your outgoings.
Whatever your Amazon business model, you’re likely to be calling on some key suppliers to keep your inventory well stocked and ready to service demand. It’s important to keep these people happy and to manage your payments to them effectively to ensure a smooth cashflow.
If you’ve not previously handled business accounts, it can take you a little while to get used to this. While software speeds up the way we can all record and maintain our accounts, you still need to understand the language of the world of invoices. Doing so enables you to understand exactly what our suppliers are asking for and enables you to talk with confidence and authority about the money that you’re spending.
Invoice terms: Checking the basics
Your invoice should include:
- An invoice number that both parties can reference
- The name, address and contact details of the party raising the invoice – as well as your own
- A list of goods or services provided including descriptions and reference numbers where appropriate
- Dates of when the order was placed and the work delivered
- The full cost of those goods and services and a breakdown of the rate charged
- Details of costs such as tax, fees and charges
- Details of when and how you will be expected to pay
If any of this is missing or doesn’t match with what you expected, then it’s important to query it as quickly as possible.
Invoice payment terms: A glossary
Our glossary of invoice payment terms should hopefully get you up to speed on the things you need to know:
- Net 7, 10, 30, 60, 90: When you see the word Net followed by a number, this refers to the number of days after the invoice date that the payment is due. So, Net 30 means that the payment outlined on the invoice is due in 30 days. Some people shorten the word Net to the letter N.
- EOM: This means ‘end of month’. Sometimes, suppliers will require payment to be made within a number of days of the month-end. So, Net EOM 30 means that the payment is due 30 days after the end of the current month. That means an invoice raised on July 14th would be due on August 30th on these terms.
- PIA: This stands for Payment In Advance. Some suppliers might need a down payment on a large order to protect themselves.
- CBS/CBD/CIA/CWO: Similarly, other terms denote that a payment should be made before the goods are received. Cash before shipment, cash before delivery, cash in advance and cash with order are self-explanatory terms that outline the need for early payment.
- Discount: Some suppliers will offer a discount if their invoices are paid early. This will tend to be expressed in the following way: 2% 10 Net 30. As before, this means that the payment is due in 30 days, but here with the added detail that you will get a 2% discount if you are able to make the payment in ten days. Such discounts are typically offered to help with the cashflow of suppliers and can be a useful way of shaving money off bills, provided it fits with your financial schedule.
- MFI: Some suppliers would prefer to set a specific date on which they wish to receive their invoice. So, 15 MFI means the 15th of the month following the invoice date.
- COD: Cash on delivery. In this case, payment isn’t due until you’ve received the goods from the supplier.
- Pro forma: A pro forma invoice outlines an estimate or quote and is typically issued before a final price has been agreed. These aren’t invoices, but let people know what to expect.
- Stage payment: This is a part payment towards a larger project. Both parties will agree milestones within a larger order and for payments to be made when these are triggered. These are also sometimes known as progress payments.
- Contra: Contra payments are made when two parties both owe each other money and involve offsetting part of the cost to ‘pay the difference’. So, if business A owed £5,000 to business B, but B also owed £2,500 to A, they would come to an arrangement where A simply paid B £2,500 and the two matters would be settled.
- PO: The purchase order is raised at the start of the order and sets out the details of the goods and services being requested. It might help both parties to have this to hand when the invoice is raised so that you can check the details match.
Knowledge of these terms should help you to understand what you’re talking about – which is especially important if you’re looking to try to negotiate more favourable terms.
As with the basic details above, the important thing here is to query anything you don’t understand at the earliest possible juncture. Some suppliers might use their own terminology – or variations on those above – and you shouldn’t be afraid of double checking things that aren’t clear. Better to do that right away than create a problem down the line when there’s a dispute over a payment.