Question

discuss the advantage and disadvantage of open-invoice method

Answer 1

Advantages:

--Since the invoices are individually tracked and aged it is conducive to offer discounts for prompt payment

-- Provides a more uniform flow of cash collections throughout a month

Disadvantages:

--Adds complexity required for maintaining the information related to the status of each individual invoice for each customers

--The method is typically used by businesses whose customers are mainly other businesses as the number of individual transactions is relatively small and dollar value of such transactions are high

--Companies (such as utilities companies, credit card issuers or national credit companies) whose customers are large and make small purchases every month prefers balanced-forward method as for them this method reduces cost and is more efficient compared to open-invoice method. For them balanced-forward method avoids the need to process cash collection for each individual sale