If you’re finding yourself drowning in invoices, lost in due dates, or spending too much time processing individual payments, there may be a solution for you. And no, the answer is not making fewer sales.
Businesses that bill the same customers multiple times for different products, services, or transactions avoid the administrative burden by invoicing them once in a time period.
The process is called consolidated invoicing, and while it can save you the headache of unnecessary admin, you need to know the ins and outs to ensure you’re doing it right and reaping the rewards.
What is a consolidated invoice?
A consolidated invoice is a billing document that combines multiple orders or transactions into one statement for a time period.
Instead of drafting, sending, and processing multiple separate invoices, a consolidated invoice lets you do it all in one, unified bill covering all transactions.
Consolidated invoices are typically sent on a weekly, monthly, or quarterly basis, covering all transactions made in that timeframe.
Think of consolidated invoices like a credit card statement. Throughout the month, you charge transactions to the card, but instead of sending you a statement for each purchase, you’re given one monthly statement with all transactions listed. Consolidated invoices use the same logic for business-to-business purchases.
How consolidated invoicing works
Consolidated invoicing is built on three fundamental components.
Grouping
The foundation of consolidated invoicing is grouping transactions. The billing business collects all relevant transactions and their details for the specified time period. This may include multiple deliveries, services, or recurring charges.
There’s no set rule for how you group transactions together. How transactions are grouped is agreed upon between the seller and the buyer.
Itemization
Just as a standard invoice has an itemized breakdown of everything that was included in an order, consolidated invoices require a clear and transparent breakdown of each individual transaction.
Each transaction should have its own line item with the listed date, description, and a list of what was included in the order. You’re essentially including an itemized breakdown for each transaction included in the consolidated invoice.
This quality helps customers verify the transactions and assists with their accounts payable process.
Prorating
Some transactions may not line up perfectly with the billing period. In these cases, it’s common to bill for a prorated amount.
Prorating in billing means charging for the portion of the amount that has been fulfilled. For example, if you are invoicing for 100 units but could only provide 50 units within the time period, the prorated amount would be 50 units times the unit price.
This is especially important for recurring charges that may not line up with the consolidated invoicing period. In these cases, you can use the days elapsed in the time period to calculate how much to bill.
The benefits of consolidated invoicing
If you’re considering consolidated invoicing, these benefits could push you to adopt the process.
Efficiency gains
Using consolidated invoices significantly reduces the time spent on the invoicing process.
Instead of creating, sending, and tracking multiple invoices, you simply need to process one single bill per customer, per period. The more invoices you process for a customer in a given time period, the more you benefit from switching to consolidated invoices.
Instead of spending time on menial invoicing tasks, finance teams are freed up to work on high-value work.
Customers also benefit from this efficiency. Instead of running multiple invoices through their finance team, they only need to process one and make a single payment.
Cost savings
Invoices come with both explicit and implicit costs. There’s the time spent, payment processing fees, paper, postage, and system resources, all of which accrue on a per-invoice basis.
If you consolidate, you reduce invoice volume. And when you reduce invoice volume, you reduce all of those costs.
This is especially true with any flat payment processing fees (i.e., those that aren’t a percentage of the paid amount). Simply put, a $5 processing fee for multiple invoices is better than a $5 processing fee on each individual invoice.
These savings may not seem like much when looking at one customer, but they add up over time, especially if you have high transaction volumes.
Cleaner recordkeeping
If you were to list every invoice you’ve sent in the last month, how long would that list be? And if you needed to audit every one of those invoices to find an error, how long would it take you?
When you consolidate invoices, you get a cleaner, more concise picture of all the transactions in a certain time period. It’s easier to find mistakes or identify trends from your customers. If you were to send monthly consolidated invoices, you could easily find the average of how much you bill customers in a month.
Improved customer relationships
Simplifying and streamlining the invoice process not only benefits you, but it also benefits your customers. And when your customers are happy, it’s more likely to become a fruitful relationship.
No more tracking multiple due dates and processing multiple payments. Your customers only need to worry about processing one payment by one due date.
This convenience helps you stand out amongst competitors that may be using slow, time-consuming, singular invoices for each transaction.
Consolidated invoices vs. standard invoices
The biggest difference between consolidated invoices and standard invoices is the number of transactions being billed.
A standard invoice is a document used when billing for a single transaction or process. When you’ve agreed on the terms of the transaction, you send the invoice for that transaction only. This means that you’ll have one invoice with a distinct invoice number for each transaction.
A consolidated invoice combines multiple transactions into one document. For example, you may have five transactions with a customer throughout the month, and send one consolidated invoice for all five transactions at the end of the month.
As a general rule of thumb, use standard invoices for one-time, large-value transactions or if your customers prefer individual billing. Use consolidated invoices if you’re billing customers multiple times in a time period and want to cut down on the amount of work spent on invoicing.
Common uses of consolidated invoicing
Some businesses benefit more from consolidated invoicing than others. Below are some common examples of when consolidated invoicing is most beneficial.
Subscription services
Businesses that offer multiple subscription types or recurring services frequently use consolidated invoicing to consolidate billing.
If a customer has a subscription to multiple services, the business then sends one consolidated invoice rather than billing them separately.
In the case of subscriptions not lining up with the consolidated invoice date, the business can prorate services to keep billing clean and convenient rather than issuing multiple invoices in a month.
Long-term projects
For businesses like construction companies or consultancies, projects may span months or years with set dates for deliverables, phases, or milestones. Rather than invoicing individually for each step of the process, consolidated invoicing allows the business and customer to agree upon billing intervals and have a single invoice for each.
For example, if a construction company is performing a 6-month renovation process, with multiple individual projects completed in a month, they could send a consolidated invoice every month with an itemized breakdown of the projects.
Multi-location customers
If you’re conducting business-to-business commerce, you may be selling to a business with multiple locations. Their corporate headquarters may request a consolidated invoice for each location rather than individual invoices for each.
The centralized, singular approach to invoicing saves everybody time and effort on processing multiple invoices and payments. Plus, the itemized breakdown of the invoicing gives the headquarters all the information to allocate costs by location.
How to create a consolidated invoice
The process of creating a consolidated invoice requires a systematic process and clear tracking of transactions. Follow these steps to implement consolidated invoicing effectively:
- Clearly communicate with customers: Don’t start using consolidated invoices until you’ve had a chance to discuss with customers. They should know about the change in advance and be consulted on billing dates and processes.
- Establish clear billing periods: You need to know when exactly you’ll be sending the consolidated invoice. It could be based on time (weekly, monthly, quarterly) or a transaction threshold, whatever works best between you and your customer.
- Follow through with a tracking system: Consolidated invoicing depends on a clear log of transactions by customer and time period. It should have a clear breakdown of all relevant details, including the dates, descriptions, quantities, and amounts for each transaction.
- Standardize your invoicing format: Starting from scratch or with a template, create a framework for how the consolidated invoice will present information. There should be clarity on every transaction, as well as the time period, payment terms, and sufficient details for verification.
- Provide supporting documents when available: Attach any available supporting documentation, like delivery confirmations, time tracking sheets, or usage reports. These are documents that verify each transaction and help the customer verify the charges.
- Have a thorough review process: A mistake on a consolidated invoice is both more likely and more costly, given the amount of information included relative to a standard invoice. Verify transactions, review for duplicates, ensure pricing accuracy, and double-check your math before sending.
- Stay in contact with customers: Get feedback on how the change in process is going for them. They may request changes to the process or formatting that make the transition easier for them.
If in doubt, a dedicated invoicing software can help you stay on top of everything. You can keep running drafts centralized so anyone with permission can update them with new transactions.
Best practices for consolidated invoicing
Whether you’re looking to start with consolidated invoicing or you’re looking to optimize your processes, follow these best practices for the best results.
Maintain transaction-level detail
Consolidation should simplify billing, but it can’t come at the cost of the level of detail provided. Every charge included on a consolidated invoice needs to be clearly itemized with enough information for your customer to verify the charges.
If you skimp on the level of detail, you may deal with more disputes, not because the customer disagrees with the charges, but because they don’t understand what they’re being charged for.
Be consistent with timing
Consolidated invoices need to be sent on the same schedule for every time period. Whether it’s at the end of the week, month, or quarter, promptness is key.
That level of predictability helps your customers plan for charges and ensures you’re billing them while the memory is freshest. Both factors could lead to quicker payments which improves your cash flow.
Use clear language in your descriptions
The descriptions on an invoice are essential components for your customers to verify charges and approve the bill. Any jargon or ambiguity could get in the way of their understanding and delay processing and payments.
Offer flexible payment options
As with all invoices, consolidated invoices benefit from flexible payment options that make it easy for customers to pay. Consider offering ACH transfers, wire transfers, credit cards, or digital payment platforms for their convenience.
Common challenges with consolidated invoices
Consolidated invoicing provides significant benefits, but that’s if you can manage and adapt around these potential challenges.
Managing complex pricing structures
A consolidated invoice is always going to be more complex than a standard invoice, and this carries over to your pricing structures.
For example, you may offer a volume discount on every 100 units purchased. This would be treated differently depending on whether you apply this to the transaction or the consolidated invoice. An order of 75 units and 125 units would be eligible for one discount, while a consolidated invoice of 200 units (75 + 125) would be eligible for two.
This also applies to tax treatments, like sales taxes or excise taxes, as well.
You need a system for working around these complexities, ensuring you’re abiding by your pricing structures or agreements with your customers.
Addressing billing discrepancies
With more information included on a consolidated invoice, some of which could be weeks or months old, customers could question individual charges. If they do, you’ll need to dig into that specific transaction, finding the details in your recordkeeping.
Always maintain records of an agreement, even if it’s a simple paper trail of an email conversation or notes you’ve recorded on a job site. The more detail you can provide, the better you can back up the charges on a consolidated invoice.
Ensuring accounting compliance
Your consolidated invoicing process still needs to abide by the regulatory and accounting standards based on your business type and industry. You may have specific requirements for invoicing format, information disclosure, or tax calculation.
Work on the structure of a consolidated invoice with the finance, accounting, or accounts receivable team to define the format before sending anything. You’ll also need to stay up-to-date on any changes to tax laws or accounting standards.
Handling partial payments
When sending a larger request for payment, your customers may want to pay some line items immediately, but defer on others. You need to be prepared to process and track partial payments, so you’re always on top of what’s left owed.
If your customers are regularly looking to pay for one line item at a time, it may be best to stick to the traditional invoicing process.
Adapting to a different cash flow
Say you invoice a customer for $1,000 every two weeks on net 15 payment terms, such that you likely receive payment before the next invoice goes out. In one month, the invoices fall on the 1st, 15th, and 30th of the month.
You switch to consolidated invoicing and only bill them at the end of the month, similarly on net 15 payment terms.
In that first example, you would expect $1,000 at three different points, with the last payment coming within 15 days of the last invoice. With consolidated invoicing, you receive the full $3,000 within 15 days of the last invoice.
Some businesses could benefit by spreading the cash flow out over the entirety of the time period. You need to decide whether the efficiency gains outweigh the smoothing of your cash flow.
Alternatively, you could request partial payments for each line item on different payment terms, spreading the payments out over a longer period of time.
Streamlining your invoicing with software
Making the switch to consolidated invoices isn’t the only way to save time on your invoicing process. Switching to a specialized invoicing tool helps you automate workflows, offer flexible payments, and improve the experience for both you and your customers.
Enter BILL, a suite of financial tools including invoice automation.
With BILL, you can automate creating, tracking, and following up on invoices at scale. Plus, we offer simplified payments to customers through ACH, credit card, and wire transfer to ensure you’re getting paid faster.
By integrating with top accounting software like QuickBooks, Xero, and others, you have complete confidence that your reporting is up-to-date and cohesive, no matter the platform you’re looking in.
Reach out to schedule a demo and see for yourself how BILL can save you time and administrative costs on your invoicing.
Frequently asked questions
Who can issue a consolidated invoice?
Any business that is issuing multiple invoices to the same customer for products or services in a a specific time period can issue consolidated invoices. Examples include contractors, subscription businesses, professional service companies, and construction companies.
The more important factor in determining whether you can work with consolidated invoices is whether you have a system in place to issue and track them.
What are the three types of invoices?
The three main types of invoices are standard invoices, recurring invoices, and consolidated invoices.
- Standard invoices are used for one-off transactions or irregular purchases
- Recurring invoices are used for ongoing services or repeated purchases that are billed on a regular interval
- Consolidated invoices are used for combining transactions into a single invoice, reducing the workload and the number of payments to process
What does consolidated billing mean?
Consolidated billing (or consolidated invoicing) refers to the process of combining multiple transactions into a single bill or invoice. For example, if you were to send four invoices to a customer in a month, you could use consolidated invoicing to reduce the work to one single invoice.
Doing so cuts down on administrative costs while also providing a clearer picture of billing trends.
What happens if a customer wants to dispute a single item on a consolidated invoice?
It’s possible to resolve a dispute for a single transaction on a consolidated invoice without delaying the payment.
The best approach is to follow through with your normal dispute resolution, potentially providing supporting documents or a paper trail of the terms.
But as you work through the process, you can request a partial payment for the remaining items on the consolidated invoice. The remaining amount can be resolved with a credit memo if you and the customer can’t come to an agreement on what was billed.
Can you use different payment terms for different transactions on a consolidated invoice?
It’s possible to use different payment terms for each transaction, but it requires planning and careful execution.
The best practice is to batch transactions based on due dates. For example, if you have two transactions on net 15 payment terms, and four transactions on net 30 payment terms, send two consolidated invoices: one for each batch.
This will cut into the gains in efficiency you’d get from consolidated invoicing. Generally speaking, if you have different payment terms or due dates, consolidated invoicing may not be the best fit for you.
