Settlement of Accounts

When the buyer’s order is received by the manufacturer it is acknowledged by letter or postcard. The order is then passed for execution - by the Sales Manager and his department - and the work of packing the order begins. As many of the manufacturer’s departments, such as Sales, Accounts¹, Despatch, etc., must have details of the order, there is much paper-work to be done. The modern practice of using one kind of printed form with copies in different colours sent to the different departments saves a great deal of time. One of these copies is used by the accounts department as the invoice, which is considered to be an important document in the export trade.

The commercial invoice will contain the details of the customer’s name, goods ordered, order number, terms and prices of the various items ordered. It may be required by banks, export/import agents, shipping companies, customs authorities, and consulates.

The invoice is sent to the customer by post, or through an agent or a bank. In the case of a single transaction, payment is executed either before delivery or on delivery of the goods. Such kind of payment is called payment on invoice ².

But if the customer has an open account with the seller, the latter will keep a record of all invoices sent out to the buyer and once a month (or once a quarter) he will send an account of all the goods shipped and payments received during the period. This document is called the statement, and the method of paying - payment on statement ³.

Below see the formulas used in letters while sending the invoice or statement (1, 2, 3) and notifying payment of account (4, 5):

1. We have pleasure in inclosing our invoice to the amount of $250,000 covering the first consignment per S.S. Santa Monica.

2. With this letter we are sending you a statement for January, February and March totalling $...

3. A copy of the invoice is enclosed. The shipping documents will be handed to you by the Russian Bank against settlement of the amount shown.

4. We have pleasure in sending you enclosed our cheque for $...

5. Thank you for the pro-forma invoice. We accept your price and are making immediate payment to our bank, who will notify you of the credit in due course⁴.

Sometimes it happens in the export trade that an account is not paid when due. A customer may run into a period of bad trade or delays may be caused by customs regulations in his country. A wise buyer will advise his supplier of any such situation and try to get concession from him. If he does not, an account becomes overdue⁵, and the seller will have to ask for payment.

If a firm decides to send a letter requesting payment, the style of it will depend upon the type of customer to whom it is meant; how long overdue; whether there were such cases before; how valuable the business is, etc. A first request should be friendly in tone and show neither annoyance nor any doubt about the buyer’s intention to pay like in the following letter:

Dear Sirs,

As we have always received your payments punctually, we are puzzled to inform you that we have had neither remittance⁶ nor report from you in connection with our current statement of 17 June.

No doubt it is through an oversight on your part that settlement is now four weeks overdue and we look forward to receiving your remittance in the course of a few days.

Yours faithfully,...

If the supplier does not receive a reply to his first request within a reasonable period, he will repeat it once more or even twice before taking legal action to obtain money due to him. The number of letters and the tone to adopt in them will depend upon individual circumstances. Below see the suggestions for a second reminder (1) and for a final demand (2):

(1) We regret very much that you have not replied to our letter of... asking you to clear the amount of⁷ $... due to invoice No... Kindly advise us if there are any sound reasons⁸ for your non-payment, or inform us what arrangements you are making for settlement.

(2) As we have received no replies to our letters of..., we have no choice but to take immediate legal action to get back the amount due to us unless your payment is received within 10 days.