Good invoicing processes prevent accounting nightmares
When you have multiple commission only agents, each one sending invoices with different formats, at different times, with varying levels of detail, your accounts payable process quickly becomes chaotic. Standardising how you handle agent invoices saves time, reduces errors, and keeps you compliant.
What a valid tax invoice needs
Under Australian tax law, a valid tax invoice must include the supplier's identity (agent's name or business name), the supplier's ABN, the date of issue, a description of the services (sales commission), the total amount, and the GST amount (if the agent is GST registered).
If the agent is not registered for GST, the invoice should state that no GST is applicable.
Standardising the process
Provide a template
Give agents a standard invoice template that includes all required fields. This ensures consistency and reduces back and forth over incomplete invoices.
Better yet, generate invoices on their behalf based on your commission calculations. The agent reviews and approves the invoice, then you pay it. This approach, sometimes called self billing or recipient created tax invoices (RCTI), eliminates formatting inconsistencies and calculation errors.
Set submission deadlines
Define when invoices must be submitted. For example, invoices for the current month's commissions must be received by the 5th of the following month. This gives your accounts team a predictable processing window.
Automate where possible
If your commission tracking system calculates amounts automatically, link it to your invoicing or accounting software. Platforms like Zepys track commissions in real time, which can streamline the invoicing process by providing accurate data that feeds directly into payment processing.
RCTI arrangements
A Recipient Created Tax Invoice is where you, the buyer, create the invoice on behalf of the agent. This is common in commission arrangements because the buyer (you) has the sales data needed to calculate the exact commission.
To use RCTIs in Australia, both parties must agree to the arrangement in writing, the RCTI must state it was created by the recipient, the agent must not issue their own invoice for the same supply, and you must provide the RCTI to the agent.
This approach is efficient and reduces errors because you control the data and the format.
Record keeping
Maintain organised records
File invoices by agent and by period. Whether digital or physical, your records should be easily searchable for audit purposes.
Retain for five years
The ATO requires you to keep business records for five years. This includes all commission invoices, payment records, and supporting documentation.
Reconcile regularly
Monthly reconciliation between your commission tracking system, invoices received, and payments made catches errors before they compound. A quarterly reconciliation is the minimum.
Handling discrepancies
When an agent's invoice does not match your commission calculation, resolve it quickly. Share your calculation, listen to their perspective, and agree on the correct amount before processing payment. Document the resolution for future reference.