Invoicing and collections are vital to the survival of any business, as this is what keeps the cash flowing. We will explore the ways that Colombians manage their invoicing and accounts receivables.
In the United States, an invoice can be received through fax or even scanned and requires only one signature. Payments with credit cards are usually instant or net 30 days is given, with most companies paying on the 30th day.
In Colombia the client is required to sign 3 copies of the invoice to show that he/she has accepted the merchandise and the agreed amount. He/she then needs to stamp the invoice which has the tax/identification number and name of their company. All invoices and their original signed copies must be collected and turned into the accountant for proper processing by the DIAN at the end of each month in order to discount the sales tax and carry out the accounting processes.
“The DIAN exists to help to ensure the fiscal security of Colombia, and the protection of national economic public order, through the administration and control of compliance with tax, customs and exchange regulations, and the facilitation of foreign trade operations, on conditions of equity, transparency and legality. DIAN administers income and related taxes, stamp tax, and sales tax (IVA); it also administers customs duties and other national-order internal taxes that are not within the competency of other state agencies, including internal taxes on foreign trade; and management and administration of the Customs system, including the seizure, confiscation, or declaration of abandonment to the state of goods, and their subsequent administration and disposal.
The DIAN is responsible for the control and supervision of compliance with the exchange regime in the import or export of goods and services, and related expenses, foreign currency financing of imports and exports, and under-and over- invoicing of these operations.
The administration of Customs duties and other foreign trade taxes includes collection, inspection, assessment, discussion, enforcement, penalties, and all other such Customs-related matters.
The management and administration of the Customs system includes services and support for foreign trade operations, and the seizure or declaration of abandonment of goods to the State, and their subsequent administration, control and disposal; and the administration and control of special import-export systems, free zones, special export zones, and the international trading companies (CI), following policies set by the Ministry of Trade, Industry and Tourism, except for contracts relating to free zones.”
Colombia and the United States have the same common net 30 day payment terms, with some special cases being stretched out to 60 days. However in Colombia 85% tend to pay 45 days without incurring late fees and in the United States 85% of the clients pay within their 30 days and incur late fees. This is seen a lot in the manufacturing and distribution industries.
Banking for businesses includes: paying in cash, credit card, check or online transfers. Almost all businesses prefer to pay in cash. The main reason for this is that checks and wire transfers require the customer to incur high bank fees. Credit cards have little to no use in business transactions. They majority of online bank transfers are done by large multinational or international companies. In the United States checks and credit cards are the two most common forms for doing businesses
The majority of companies schedule to pay off their accounts on Fridays. This requires the accounts receivable department to call all customers with open invoices to check the status and find out which times the company can send someone to collect the payment.
When collecting a payment, many times a professional messenger company is outsourced. The representative from the messenger company is required to sign and stamp a receipt showing that he/she has accepted the owed amount.
In case that a client fails to pay there are a series of steps that one must take to action.
- Attempt to collect the money from the client. The time given to collect the money for such cases is around 5 business days.
- Once the client has been contacted and still refuses to pay, a settlement is then attempted to be resolved. This could include for example; reducing the amount owed or offering a payment plan etc.
- If an agreement has still not been reached, then the invoice will be made effective and a written letter will be sent to the company showing that legal action has been taken. This will then require the use of lawyers and legal processes. The cost of these arbitration issues can vary depending upon time, amount and type of case.
Whether you are looking to start up a new business or expand an existing business, the basic understanding of collection and invoicing in Colombia, has just made it that much easier!