Become an Invoicing Master With These 8 Tips
Sending out an invoice may appear simple, but if you do it well, it’s almost an art form. Many entrepreneurs and business owners don’t understand how to do it properly. So if you haven’t evaluated your invoicing habits with care, then there’s a good chance you’re missing out on opportunities to maximize your revenue as well as improve your recordkeeping.
You can’t prevent delinquent invoicing from happening altogether. Whether you’re a small business with five or six clients or a massive corporation with thousands, you’re going to have accounts receivable that don’t come through on time.
The difference between a successful firm and the slackers is that the former knows how to reduce the risk of late payments by observing the following tips:
Include All of the Right Info
“It may be hard to believe but there are no mandatory — legal or otherwise — items that must be included on invoices,” explains Hloom, an online library for blank invoicing templates. “That is likely due to the fact that invoices themselves are not considered legal documents.”
An invoice isn’t a bill of sale or evidence of a sale. It’s just a detailed statement that informs the client that services were performed and money is therefore owed.
If you fully understand this, then there are some common elements you’d be wise to include on every invoice. These include the amount due, the payment due date, the date the invoice is issued, a description of the goods or services purchased, and the customer’s information (address, tax ID number, etc.).
The more information you can provide on an invoice, the better. Not only does it make you look more professional, but it also helps the client understand how a specific figure was determined when the money is due, how it can be paid, and anything else that may be pertinent to the service performed, as well as the pending transaction.
One of the worst things you can do is surprise a client with a charge on an invoice. That’s why it’s a good rule of thumb to send written quotes before you deliver the product or service.
These initial quotes should be as accurate as possible and clearly explain the payment terms. Not only will such documentation back you up should the client refuse to pay, but it will set the expectations on the part of all the parties, in advance.
Set Shorter Payment Terms
Xero has analyzed more than 12 million invoices and determined that the average debtor pays two weeks late. So if you want to get paid on time, it’s a smart move to set the payment terms for two weeks earlier than you expect to get paid.
That means a payment term of 13 days — which is acceptable in today’s business arena — is ideal if you wish to be paid within 30 days.
Have Your Own Policies in Place
When invoicing, your primary goal is to get paid for the services you performed. But it’s not always as straightforward as sending an invoice and having the client cheerfully respond with a check. Clients, especially in certain industries, are notorious for being stubborn.
You’ll have some clients who are always two weeks late or others who only pay a portion of what they owe, promising the rest at a later date that never seems to come. It’s even possible that you’ll have clients who refuse to pay you by claiming you did something wrong or didn’t follow through on a small promise.
Dealing with these troublesome clients is no fun, but you need to come up with your own internal policies in order to avoid getting taken advantage of. Here are a few things to think about:
- Work performed. When will the client be asked to pay? You may decide that they can pay before or after receiving the work. If you’re an established business with a solid reputation in the industry, then it’s not uncommon to ask for payment after work is performed, but prior to delivery. If you don’t have much of a reputation, then you may have to settle for delivering some of the work first. Either way, create a policy and stick to it.
- Down payments. If you perform services that take a long time to complete and/or involve large sums of money, then it’s not unusual to ask for a down payment. Figure out what percentage is standard in your industry and require that all clients provide a down payment prior to the start of every project. This has the added bonus of warding off customers who aren’t serious.
- Payment mode. How will you accept payments? Checks are easy, but they can bounce. Cash is great but can be a nuisance to deal with. Credit cards are typically the best solution, but then you have to deal with processing fees. Think through these things and come up with a plan.
- Late penalties. There are times where clients genuinely run into unforeseen trouble and need a little grace, but you have to know when to stick up for yourself. Stiff late penalties are a good way to motivate clients to pay on time, every time.
Gaining some clarity on these different issues won’t prevent problems altogether, but it will help you stand up for yourself and show clients that you’re serious about getting paid. You’ll occasionally have a client who simply refuses to cooperate, but (for the most part) you’ll discover that clients follow your policies if they want to have a healthy working relationship with your company.
Don’t Rush Into Things
Once you finish a job and deliver the work, you want to get the invoice squared away and move onto the next job. That’s totally understandable. There’s no sense in spending more time on a project that’s already complete. But don’t make the mistake of sending an invoice too quickly. There’s value in being patient.
A mistake you’ll commonly see is businesses sending the final deliverable along with the invoice. This is a bit presumptuous and makes the client feel as if you’re trying to get rid of them.
Wait for approval and then send the invoice 24-36 hours later. This shows that you aren’t desperate and gives the client a little breathing room. It also prevents the embarrassment of sending a project and invoice, only to have the client come back and ask for something to be changed. Then, you’re in the difficult spot of determining whether you can/should add that extra time into a new invoice after the client has already seen the old one.
Always Follow Up
Never send an invoice and then assume it’s been received and the customer will follow through with a prompt payment. It’s usually a good idea to follow up right after delivery and then again one week before payment is due, the day it’s due, and every week after it becomes late. If you have an even larger order, it’s not inappropriate to send reminders more frequently.
There’s a time to be stern and demanding when you’re invoicing, but there’s also time to be kind. When you send out an invoice, try to take a lighter approach.
Say “please” and “thank you” and consider composing a handwritten note of appreciation to clients who pay early or on time. On the other hand, should you encounter a client who goes weeks late, that’s an acceptable time to drop your gracious manners and get down to business.
Check Before Sending
The final tip is simple, but you’d be amazed by how many people have made the mistake of overlooking it. You always need to check (and double-check) the recipient before sending an invoice.
When you’re busy with work and have a handful of different clients you’re working with, it’s fairly common to have different ones paying different rates. Much depends on the quantity of work they order, how long you’ve worked with them, what their payment terms are, etc. Thus, in a fictional scenario, you could have one client paying $500 for 10 hours worth of work and another client paying $1,000 for 5 hours worth of work.
What happens if you accidentally send the $500 invoice to the $1,000 client? Suddenly they feel like they’re overpaying and will have some questions. You may have just forced yourself to lower your rates. At the very least, you’ll have to do a lot of explaining.
In order to prevent invoicing mishaps like this, always check the recipient before sending. If you email invoices, set up a restriction within your email platform that requires you to verify the sender after the “send” button is clicked. You may get it right 99 times out of 100, but that one time you forget could come back to haunt you.
Look Out for Yourself
It’s a shame that invoicing has become such an arduous and time-consuming burden for so many companies. It should be a simple and straightforward piece of business: the finishing touch on the completion of a project, and straightforward compensation for the work.
But the reality is that if you don’t look out for yourself, nobody will. Devise and implement a sensible and formal strategy for invoicing, and you’ll enjoy superior results.