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The definition of self-billing:
At its most basic level, self-billing is an arrangement between the supplier and their customer. Self-billing usually occurs in business-to-business transactions, and can be used for both goods and services. Self-billing is used when there is a customer/supply relationship where the customer creates the documents instead of the supplier. The buyer generates the invoice based on the information they have about the purchase. For example, the price, date, quantity, etc.
They then send this invoice to the seller. Once the seller has received and approved the invoice, the buyer will pay it according to their usual payment terms.
The benefits of self-billing
There are a number of advantages to using self-billing arrangements, including:
- Time-savings: The buyer doesn’t have to wait for an invoice from the seller. Meanwhile, the seller doesn’t have to generate and send an invoice to the buyer. This can be a big time-saver, especially if you’re dealing with a lot of invoices. For example, if you operate in multiple global markets or generate custom usage-based invoices for each of your customers.
- Reduced costs: If you’re using paper invoices, self-billing eliminates postage costs. This is because the buyer is responsible for sending the invoice to the seller. Businesses can also avoid late payment fees, as the buyer is likely to pay the invoice sooner than if they had received it from the seller.
- Fewer mistakes: Buyers are typically more familiar with their own accounting systems than sellers are. Therefore, self-billing can also help reduce mistakes on invoices.
- Fewer resources: Self-billing can also save time and money by reducing the number of people involved in the invoicing process. For example, if your company bills customers manually, you’ll need someone to generate invoices and another person to mail them. With self-billing, your customers can generate and send their own invoices, which means you won’t need as many employees dedicated to billing.
- Greater cash flow management:Â Self-billing can help businesses manage their cash flow more effectively. This is because they know when they will receive payments in advance.
Steps for setting up self-billing
Now that we’ve looked at the benefits of self-billing, let’s explore the process for setting up a self-billing component to an accounts receivable system.
First, determine who will generate invoices. In many cases, businesses trust this responsibility to a third-party software specializing in e-invoicing and accounts receivable management.Â
Then, notify your stakeholders of the change. Let them know that you’ll be switching to self-billing and explain how it will work. This communication should come from a senior leader within your organization, such as the CEO or CFO.
The next step is to train your team on using the new system. While self-billing is mostly automated, there will still be some manual tasks involved – particularly when it comes to inputting data into the system. Make sure everyone on your team understands how the new system works and what their responsibilities are in terms of maintaining accurate records.
An example of self-billing in practice
Nitrobox’s new self-billing feature allows businesses to create Self Billing Line Items that will be included on a corresponding Self Billing Invoice.
Imagine you have a bi-directional business with a supplier where you both render services to each other. You use their service, but they pay you commissions.
In this example, you can generate an invoice to bill the services you provided (debit process) and a Self Billing Invoice to bill the services rendered by your supplier (credit process).
Want to learn more about Nitrobox’s self-billing capabilities? If so, get in touch to speak with a member of our team.Â