Invoicing is perhaps the least exciting part of owning your own business. You would likely much rather be doing the actual work that adds value to your customers instead of running through paperwork. However, invoicing is absolutely vital to your business: it is what keeps your cash flow in check and pays your bills.
Because invoicing is so vital, you should not only stay on top of your billing obligations, but you should invoice your clients in a way that will give you the most return on the time that you are putting into the process. It is no secret that you need to actually prepare and send the invoice if you want to get paid, but you can also take steps to ensure that the invoices you do post are more likely to be paid promptly.
There is a method of invoicing that you can use to help create invoices that are more likely to get paid. That means that the client not only remembers to send your payment but that they are also willing to give you the amount invoiced because they received what they wanted or because the price is fair for what you put into the project. The following list includes the most common problems with invoices and how to avoid them:
It is easier to understand some of the most common invoicing mistakes than it is to avoid them. However, you can use the following tips and information to reduce your chances of falling into common invoicing pitfalls:
When you establish a relationship with a client, it might be a good idea to give them a sale of goods agreement or general services agreement that states exactly what your terms are and how they will be enforced. You can set out things like:
Having this type of document to govern the relationship will cut down on the overall disputes as both parties will be aware of what the expectations are and what will happen if they are violated.
Tracking invoices can be very challenging. However, implementing a numbering system can help you easily find and manage every invoice that goes out your door. It is also easier to determine which invoices have been paid. Having numbered invoices will also be easier to use if you are audited.
When invoices are not paid on time, it can seriously disrupt a business’s cash flow. As a business owner, you count on those invoices to be paid so that you can pay your company’s bills as well. One of the ways that you can encourage your clients to make timely or even early payments is to use an incentive program.
For example, you may state that your terms are net-30, but if the client pays within 20 days then they can get 5% off of their total order. This type of incentive does cost a little off the top, but it encourages regular cash flow. It also helps you maintain a better relationship with your clients. Your customers may think that they are getting a deal by paying early (even if you have increased your prices by 5% to account for this type of incentive program). You can include these terms in your sales contract, or they can be periodically added to your individual invoices as needed.
While electronic billing is very helpful, you do not have to use it if you are uncomfortable with it. However, you should develop some kind of system that will alert you when a bill is due so you can follow up with the client.
That system could be something as simple as marking the calendar when you should be getting paid. It could also be a spreadsheet that you create with an invoicing program that will show you past-due invoices. Whatever you use, just be sure you utilize something. You should always know when to follow up with clients when bills are not getting paid.
In some businesses—particularly larger companies—they will only process invoices at a certain time during the month or week. They may not be able to handle your weekly invoices until the end of the month, for example.
If you have large, regular clients, it might be a good idea to talk to them about what their process is for invoices. That way, you have realistic expectations when it comes to a payment timeline. It also helps you avoid offering incentives or discounts when they truly are not doing anything to get you paid faster.
You need to be very detailed and meticulous in your billing. In some cases, it can be hard to separate yourself from the project and the bill. Keep in mind that simply referencing a part of a project with very little explanation may make sense to your client contact, but it might be very confusing to their bookkeeping department.
Having someone else in your company review your invoices before they go out can help you catch things like:
If you create your own bills, have your assistant look over them. You could also have an assistant create them from your notes and alter them, so they have enough detail that they make sense, and then you can review them. If you are a one-person show, create your invoice and then set it aside to examine a few hours or even days later. A little time apart from the invoice can help you see things with a fresh set of eyes.