Get your invoices right and get paid faster
Invoicing is a critical part of any business’s processes. Without invoices your customers won’t know how much and when they need to pay you. And without any money coming in, your business won’t survive for long!
Being a small business owner often means too much to do and too little time. Yet it’s worth making the effort to put in place an efficient invoice system. A streamlined invoicing process can make a drastic reduction in how much time you spend collecting your hard-earned money. And that’s got to be great for your business, right?
When should you send the invoice?
According to the accounting software provider, Xero, most businesses only send invoices every 2-4 weeks. What’s worse, when they first set up their business, they underestimate how much time invoicing will take up.
It doesn’t matter what your payment terms are if you don’t send the bill on time. Whether you give 30 days to pay, or a mere seven – the clock doesn’t start ticking until the invoice is out the door.
The best time to send your invoice is as soon as possible after you’ve delivered the goods or done the work. If you’re invoicing for an advance payment then do it as soon as you have contractual agreement.
It’s easy to let invoicing accumulate and do it all at once, but if you want to get paid and have consistent cashflow daily invoicing is a must.
What should your invoice look like?
All invoice design has the same goal – to help you get paid. But not all invoices are created equal. A poor invoice design can cause confusion, annoyance, or apathy at the client’s end. The ultimate end product being payment delays.
For manual invoice creation there are lots of templates available to download from the internet. We’ll look at specific content shortly but first let’s talk about format.
Keep it simple
Different customers will manage invoices in different ways. Larger customers may scan your invoices into invoice reading software feeding into their accounting software. Others will print, process and file your invoice manually. The common thing all customers need is a simple but smart layout.
Avoid the temptation to use lots of colour on your invoices. That invoice scanning software is not always good at reading colour. Always try to keep the text and numbers in black to give the best possible chance of a successful scan.
Opting for a standardised invoice layout means you spend less time designing. It also reduces the room for error as you become familiar with the invoice layout and the information needed.
Make sure that key information such as the invoice number, due date, customer purchase order number and amounts due are clear and easy to identify.
Stay true to your brand and don’t forget to add your logo!
When you create your invoices, it’s vital they look smart. A professional-looking invoice is more likely to receive prompt attention than something cheap and amateurish.
What information should you include on the Invoice?
Whether you’re a sole trader or a limited company there are some things you must have on your invoices. Even more if you’re VAT registered.
Some are obvious – the word ‘invoice’ on the document, an invoice number, invoice date and total amount owed. Other requirements are less obvious. For instance, if you’re a sole trader, using a business name, you should show both your name and your business name.
For a full list of requirements visit GOV.UK.
A clear description of what you’re charging for
One of the requirements is to have details of what you’re charging for.
No one likes getting an invoice for a big sum of money if they’re unclear about exactly what it’s for! Don’t leave any doubt in your client’s mind about the nature of the work you’ve completed for them.
Your invoice should include accurate and easy to understand descriptions of the goods and services you’re charging for. Avoid using vague terms such as ‘accounting services’, instead give details such as ‘preparation of monthly management accounts’.
Be consistent with the terms you use in your proposals, quotes, discussions with clients and on your invoices.
The nice to have stuff
There’s quite a bit of information you can put on your invoice that is not a legal requirement but would constitute best practice to include.
You should have agreed your payment terms with your customer before you did any business with them.
Surprising you don’t have to put your payment terms on your invoice, but you would be a bit silly if you didn’t.
TOP TIP: You can go one better though and include a due date.
It always surprises me how many people don’t include a due date on their invoice. I’ve seen many invoices that say “Please pay promptly”. It’s a nice sentiment yet one doomed to fail because your idea of ‘prompt’ is likely to differ to that of your client.
Including a due date takes the guesswork out of when the money should be in your bank account. Your customer doesn’t have to work it out, it’s there in black and white. No excuses for not knowing.
I recently shared this tip at a networking event and a few days later got an excited message from one of the attendees:
“Nicki – You are amazing! I used your top tip that you shared at 4N on Wednesday about including a date on my invoice rather than just “payment in 7 days” this person usually takes between 10-14 days to pay and this time they paid me the day they received the invoice! Maybe a coincidence – I’d like to think it was your tip!”
It’s also good to remind customers of any penalties for late payment.
Purchase Order (PO) Numbers
Many of your customers will use some form of unique reference to identify the purchase they have made. Many accounts payable departments won’t pay an invoice if it doesn’t have a valid PO number on it.
Establish with your client of they use PO numbers. If they do try to always ensure you get one with every order, even if you have it’s a retrospective one for that urgent delivery that had to go out!
Put it on your invoice! Having a PO is no good if it’s not on the invoice.
Include a personal message if you can, thanking them for their business and being polite in the request for payment. Studies have shown that expressing gratitude increases response rates.
Make it easy to pay you
Have your bank details on the invoice. BACS remains popular for business to business transactions but consumers may want alternative ways to pay.
Most of all be accurate!
Having all the detail in the world won’t help if even one bit of it is wrong. The client, or the client’s systems might reject your invoice for the simplest of errors.
This includes who you are invoicing. Make sure you have the full and correct name of the business or person you are billing to avoid any doubt or confusion.
How should you send your invoices?
This often depends on your customers’ requirements.
Know your customer’s preferred method of receiving invoices.
If you email your invoices
It is better to email a PDF of your invoice rather than a link to your invoice in your accounting software.
If you’re creating manual invoices always convert to a PDF before sending. This prevents the customer from amending the invoice and then raising a dispute. Not that any of your customers would do such a thing!
Where should you send them?
Ask where or to who you need to send your invoices.
Send to the right person, the one who pays them. Invoices sent to, say, a buyer who isn’t prompt in passing them on to accounts payable causes unnecessary delays.
If you send invoices to a personal email, make sure to include a generic finance or accounting address in CC (e.g. accounts@). People come and go, and you don’t want payment delays because your contact left the company.
This does seem like a lot of work.
Having a standard template takes some of that away but even better is having invoicing software. That can make a big difference. An invoicing function generally comes as part of an accounting package. This means automatic updating of your books with the payment of each invoice.
Better still are cloud-based accounting packages that let you do your invoicing on the go. I’ve already mentioned Xero, but there are several to choose from. Do some research and choose what works for your business.
If you have any questions about the content and design of your invoices then please call Nicki on 07900 834802, or get in touch via our website.