Clinching a deal is a great feeling. Doing the job is a pleasure. But it’s not money in the bank until you’ve got paid for your efforts and, amazingly, plenty of small businesses still admit to not focussing enough on this crucial part of the process.
Sometimes, it’s because we concentrate exclusively on sales - after all, that’s always going to be a priority. Equally, it may be a lack of systems or processes, which makes the physical management of invoicing too complicated. If you sit up well into the night doing invoices, then you’re in this category. Or you may just be a typical entrepreneur: excited by new things and bored to tears by admin.
Whatever the reason, bad invoicing means bad cashflow. To avoid the red ink, here are ten tips from Alex King, CEO of small business accountancy specialists, The Local Bookkeeper.
- Include all necessary information, otherwise your client has an opportunity to stall. Include your company name, address, phone number, email address, website and accounts contact name.
- Date all invoices, statements and chase-up notes. On the invoice, include not just the date sent, but also the due date and payment terms. This clarity improves your chances of getting paid on time enormously.
- Include a unique invoice number (usually, you’ll simply increment it on the next one) or reference. This makes reconciliation (matching invoices with jobs and payments) much easier, and means you can discuss invoices on the phone without confusion.
- List precisely the products or services being billed in as much detail as possible (just like your supermarket shopping). This removes confusion, but it also makes the invoice comprehensible by someone who wasn’t involved in the execution of the job; for example an Accounts Clerk. Oh, and it also makes your invoice look busy!
- If you’re registered for VAT, your invoice must, by law, be a complete VAT invoice. It requires a breakdown of VAT charges and rates included, and must clearly display your VAT Registration Number. Incidentally, by law, you must also issue VAT invoices within 30 days of delivering your service, so don’t put it off!
- Make your payment terms clear. For most service businesses, it’s 30 days; but that’s by no means set in stone. Retailers demand payment at the till; many small businesses look for 7-day terms. For larger jobs, you may negotiate scheduled payments throughout a delivery process. Whichever is the case, make it obvious what’s expected by when on the invoice. Indeed, this advice is a little late: it would be bad practice not to make payment terms transparently clear when the initial deal was agreed.
- Send your invoices out promptly – ideally within a couple of days of finishing a job. Don’t hold back – any lull between completion and invoicing is simply cashflow trickling away. Equally, “finishing a job” means finishing it to a standard which is acceptable to the client and signed off. Nothing annoys customers more than getting a bill for a piece of work with which they’re not yet happy!
- Email is fine. These days, fancy paper invoices aren’t essential. Email is accepted, immediate, and saves postage costs. Convert your Excel or Word invoices into a PDF; this will ensure that nobody can tamper with it later.
- Track all your invoices with Excel. Keep a simple spreadsheet, using Invoice Numbers (see 3 above) in the first column. For each invoice sent, note the client name, date, amount, due date and any other key information. Whenever you chase up payments, note it in this list. Keep paper or electronic copies of the actual invoices somewhere safe, too.
- Ask for your money. Many business owners hate this part – it’s confrontational. But it’s your money, and it’s your business which will suffer without it; so don’t hesitate to ask for it!
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