Q. (cont.) We know that we would have to have a legal document between both customers as to the party responsible for payment.
A. This is awkward and risky but it is sometimes done. Here are a few considerations. First, you should disclose to the customer that its customer is also a customer of yours – there’s a chance that it will not want to proceed with the invoice scheme and run the risk that its might lose future sales that may come directly to you rather than through it.
The customer is trying to eliminate invoicing – rather like drop shipping. Your contract must be clear as to who is billing whom, and who is paying whom.
A typical discrepancy that occurs in such a situation is that the second customer’s AP cannot match the contract (or PO) with your invoice because the names do not match. This leads to the invoice being rejected, delaying payment.