Invoicing and Settlement of Accounts

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Invoicing and Settlement of Accounts

Payment of the amount owing for goods supplied or services
rendered is the final stage in a business transaction. Transactions
in the retail trade are usually for cash; in wholesale and foreign
trade it is customary to allow credit.


When goods are supplied on credit, the seller sends an invoice to
the buyer. It serves the following purposes:

(I)  it informs the buyer of the amount due;
(ii) it enables him to check the goods delivered;
(iii) it is the source of entry in his purchases day book.

The invoice communicates a charge, but it is not a demand
for payment. It should be carefully checked, not only against
the goods supplied but also for the accuracy of both prices and

In the home trade invoices arc sometimes sent with the goods,
but more usually by post separately from the goods. If the buyer
is not a regular customer, he is expected to settle the account at
once, but regular customers arc allowed credit, invoices being
charged to their accounts. Payment is then made later on the
basis of a statement of account (“statement” for short) sent by
the supplier monthly or at other periodic intervals.

Pro forma invoices

This is an invoice sentfor form’s sake. It differs from an ordinary
invoice only in being marked “Pro Forma”. It is used:
(I) to cover goods sent “On approval” or “On consignment”,
(ii) to serve as a tormal quotation;
(iii) to serve as a request for payment in advance for goods
ordered by an unknown customer or a doubtful payer;
(iv) where the value of goods exported is required for customs purposes.
Pro forma invoices are not entered in the books of account and are not charged to the accounts of the persons to whom they are sent.

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