As a small business owner, getting paid is important. However, it’s often not as straightforward as you might think.
If you’re not used to sending invoices, there can be a lot to come to grips with.
If you do it well, you make it easier for clients and customers to pay you on time. However, if it’s not done well, you can end up frustrated with the amount of time you spend chasing up overdue payments.
Take the time to set up a robust invoicing system that is suitable for your industry standard. This makes it easier for customers to pay you and reduces the chances of late payments.
Setting up an invoicing system isn’t everyone’s idea of fun. The thing is, there’s more to invoicing than simply sending them out to customers.
At the same time, as a business owner, you may never have had to deal with invoicing before. You might have received some, and paid them, but if you haven’t had to think about things as the person sending the invoices, you can easily fall into some common traps.
Online invoicing systems are automated and intuitive, and make invoicing much easier. Popular systems include:
Bonus tip: You may also be able to use industry-specific invoice and accounting services. For example, Next Minute, Fergus and Tradify all cater specifically for trades businesses, with invoice and accounting alongside job management tools.
There are a few legal requirements when it comes to invoicing, and things you have to include:
So what are the mistakes business owners make with their invoices, and what should you actually be doing?
The longer you take to send the invoice, the longer it’ll be until you get paid. It can be tempting to send invoices at a certain time of month, but that can mean work goes unpaid for several weeks.
Ideally, you should send invoices shortly after work has been completed and signed off. This keeps them relevant and at the front of your customers’ minds. If they’re happy with your work, they’ll be happy to pay you for it, and sending the invoice straight away capitalises on that sense.
From a business perspective, waiting until the last day that an invoice is due before paying it is good for cash flow. Many customers are likely to take this approach – not because they’re disorganised, but because it’s good for their books.
With this in mind, you should be clear about an exact date that the invoice is due.
Read more: Tips for small business owners
When getting set up with a new company, ask who is the best person to send invoices to. Often it won’t be the primary contact for the piece of work they’re doing.
Don’t rely on your primary contact to forward your invoice on to the finance department – get their contact details and send the invoice directly to them.
Also, you need to be sure you’re invoicing the legal entity rather than a brand name or trading name. For many businesses, it’ll be the same name, but it’s worth taking the time to check.
It’s best practice in invoicing to break down invoices so customers can see time spent across the various activities and other charges. Some customers may consider this unnecessary, but others will value it.
By making it a standard part of your invoicing system, you’ll save time dealing with queries from customers. These queries usually push back the payment of an invoice too, which means more time until you get paid.
This is particularly important if your work with a customer involves work across different business areas.
Yes, invoices are about getting paid, but it doesn’t mean you should forget about common courtesy. Invoices are usually emailed, and the body of your email should be courteous and polite.
This is especially the case if you use invoicing software that comes with an email template. Is the wording of your email true to who you are? Is it polite? Take a look at it and consider updating the wording.
Research has also found that saying “please” and “thank you” in your invoices helps to get paid faster.
Having an agreed set of invoicing terms and conditions with your customers helps to set the right expectations from the beginning. If you don’t have it written down, it can be enough to just have a verbal agreement…although having it in writing can help to avoid issues or conflict.
However you have your terms set up, it’s worth restating them whenever you send an invoice. It prevents bad habits from emerging and gives your customers an easy reference point if they need it. It can be written down on the back of the physical invoice, or emailed as a .pdf file along with the invoice itself.
The reality of sending invoices is that some won’t be paid on time. You can do everything you can to prevent this, but it will happen from time to time.
Following up is not only necessary to get paid, but it’s also highly effective. If you don’t do it, there’s a good chance the customer will never get around to paying it (especially if they missed the invoice in the first place, which is not uncommon).
However, if you follow up with a polite reminder a few days after the invoice was due, they’re likely to apologise and get it paid soon after.
There are a range of different payment options in invoicing today. Direct debit, credit card and third party payments companies like Pinch Payments are all popular options.
Different customers will have different preferences, and if you offer the payment method that suits them, you’re more likely to get paid sooner.
As mentioned above, invoice payment terms help to outline the invoicing process with your customers and what the expectations are when it comes to invoices.
They are the rules that govern all of your invoicing activity with a customer, and many of these rules will be transferable from one customer to another.
They provide details including:
Having agreed written payment terms helps to show both parties agree to them, but this is often considered unnecessary. The important thing is you have them written down so you can refer back to them, and keep things consistent. As above, you should also send these to customers along with any invoices.
Negotiating payment terms can also be a standard part of commencing work with new clients.
Invoicing essentially comes after extending credit to a customer, so you should take the opportunity to ensure you’re comfortable doing work for them before being paid. It’s good practice to credit check new customers, and you may opt to require a deposit for first-time customers.
For large invoices, you can look to register a financing statement on the PPSR to protect your interests should your customer go into liquidation or receivership.
Deciding if your small business needs a credit line is a step in itself.
In building your invoicing system, everything you do should be about promoting positive cash flow in your business. That means making it easy for customers to pay you on time, so you can use the money to continue to grow.
FundTap helps business owners to get cash to spend in your business. FundTap puts cash directly into your account, often within hours.
It’s a form of small business factoring that essentially purchases your invoices whenever you want cash to spend on your business, whether it’s for unexpected expenses or investing in growth opportunities.
FundTap links directly into your own accounting system, so when customers pay your invoice, it’s direct debited straight back to FundTap, plus a small fee. This makes it quick and easy to get the money you need to grow your business.
It’s more flexible than traditional small business factoring too. Because FundTap is integrated into your accounting system, you can select the invoices you want to get paid. If you don’t need any paid one month, that’s great – don’t select any. This helps to keep your own costs down while also giving you the option to boost your cash flow at anytime.