When you start a new business, it’s easy to underestimate the invoicing process. It might seem like one of those little jobs, but there’s often more to it than that.
And, because invoices are how you get paid, it’s important you get it right.
If you don’t, you’ll take a lot of time to generate invoices that aren’t user friendly. Customers might not be able to make sense of them so they’ll query things with you. That takes up even more of your time, and means it takes longer for invoices to be paid.
This is everything you need to know about making a streamlined, efficient invoicing system.
The best way to manage invoices is with online invoicing software such as Xero or MYOB. It automates processes and standardises invoices to save time and money, and promotes healthier cash flow by enabling customers to pay you on time.
What is invoice management?
Invoice management is the way your business generates and distributes invoices to clients.
One of the big problems for businesses that invoice has traditionally been taking sales information and using it to make invoices. Doing this process manually is time consuming and error prone, and often admin staff don’t have important contextual information about the work.
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This is where an invoice management tool comes in handy. It automates invoicing processes to save time and money, and helps with improving business cash flow by ensuring more customers pay invoices on time.
Role of invoice management in business functioning
It’s easy to see invoicing as little more than an administrative task, but it’s actually much more important than just that.
At a basic level, invoicing is about how your business gets paid. Critically, it connects the work you do to the revenue you earn. Without good invoices, there’s a disconnect that impacts those earnings.
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Your approach to invoice management has flow-on effects to business functions in a few key ways:
- Cash flow is vital in small businesses – it’s how you cover costs with the money you make. As mentioned above, invoices promote healthy cash flow by encouraging customers to pay you promptly.
- Time is something many small business owners don’t have enough of. The more time you spend managing invoices, the less time you have for other operational matters.
- Information sharing. Automated invoice management feeds sales information directly into invoices. Doing this manually takes time and creates the opportunity for mistakes.
- Reputation. Good invoices don’t exactly impress customers, but bad invoices can do a lot of damage. Invoice management involves sending error-free invoices – charging the wrong amount either costs you money or damages customer relationships.
Invoicing vs billing
Invoicing and billing are commonly confused, but it helps to draw a distinction between the two. Ultimately, the difference is the timing of payment.
An invoice is a request for payment that a business sends to a customer after they’ve completed a piece of work. It details what work was done, or what products the customer bought, and the total value of what the customer owes.
Invoices are payable within a specified period, often up to 30 days.
A bill is a sales document that details payment for product or services. The main difference is payment is made on the spot, rather than at a later date.
Bills also include breakdowns of the work performed, and often serve as evidence of a transaction.
Ways to manage your invoices in an efficient manner
It may seem like there’s a disconnect between invoicing faster and invoicing better. However, there’s no reason why you can’t do both.
Choose the right type of invoice for the job
Often it’s not as simple as doing the work and generating an invoice. What do you do if you’re working on a large project that takes months to complete? Or, how can you make invoicing more efficient if it’s predictable?
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There’s no one size fits all invoice template. Talk to your client at the outset and set up a payment schedule that works for you both. Having regular, reliable invoices just makes cash flow more steady.
- Instalment invoices are good for big projects to ensure you don’t have to wait until the end to get paid. They’re often used in the construction industry and other sectors that work on large pieces of work to ensure suppliers have money coming in at key milestones in the work.
Identify key phases in the overall project and send invoices at the end of these milestones.
- Final invoices are sent at the end of projects, summing up everything that was involved, detailing outstanding balances and including any recent work that needs to be paid for. It’s also a good way of formally signing off on a project.
- Recurring invoices are well suited for clients who have a regular service each month. Set up recurring invoices at pre-arranged intervals and save time starting again on a new invoice each month.
Manage invoices online
Online invoice management software is cheap and easy these days. It eliminates paper and handling systems and makes it easy for clients to process online payments. This is an absolute basic step that all small businesses should be doing.
Avoid common delays
Even with a modern, online invoice management system, there are a range of ways invoice payment can be delayed:
- You sent the invoice to the wrong person. If your customer has a finance/admin person, send it to them – not the main contact you go through for day to day business.
- The terms weren’t clear. Invoice terms dictate how long customers have to pay invoices. If customers aren’t clear on these details, they may assume they have longer to pay than they do.
- You sent the invoice at a bad time. Like any email, invoices can be missed. Talk to customers about times that suit them best. Avoid busy periods or anything outside office hours so the person who picks up your invoice can schedule payment there and then.
Managing sent invoices in your invoices app
Invoice management solutions often come with apps that make it easy to resend, edit or cancel invoices on the spot. This just means you can react to any mistakes or update invoices quickly if you need to.
Customise your invoices
Your customers are probably used to receiving a lot of invoices. Make yours distinctly your own, so there’s no mistake in scheduling your payment to someone whose invoices look the same to yours. It may sound silly, but this can happen!
Better yet, include a pay now option on your invoice to remove even more risk of a payment mistake.
Importance of using an invoice management software
As we’ve mentioned, using invoice management software is perhaps the most effective thing you can do. In particular, MYOB and Xero are fast and easy invoice management for small business owners.
- Automated payment reminder emails to follow up late-paying clients without taking up your time
- Recording tax information for bookkeeping purposes
- Reducing paperwork and other manual processes
- Invoices are online, harder to lose and easier to share with the right people
- Online invoices allow for immediate online payments
Managing invoices online is one of the best small business financing tips for both saving costs and promoting income.
Technology is in everything in today’s world, and that includes invoicing. If you’re not using invoice management software, OR you’re not maximising all the tools it comes with, you’re costing yourself time and money unnecessarily.
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