Invoice issues? Not getting paid on time? It’s a frustrating reality for most small business owners.
According to a 2012 survey by The Wall Street Journal, 64 percent of small businesses had unpaid invoices more than 60 days old while 20 percent say the problem is getting worse.
But aside from becoming putting on your collections hat and hitting the phones every spare hour of the day, what can you do about it?
One often overlooked strategy is a smart invoicing process. Learning how to invoice well can make the difference between the next missed payment and a system that makes cash flow problems a thing of the past.
Set Invoice Terms Like You Mean It
Smart invoicing starts long before you issue one. When you issue a proposal, statement of work, or contract, be sure to outline your terms upfront. Be specific. Instead of saying “Net 30″, use plain language–”Payment due upon receipt” or “Payment due in 30 days”.
Your terms can also help you get ahead of the curve. For example, many freelancers and other service-based businesses, such as web designers, use their contract terms to request an upfront payment (or non-refundable deposit). This protects you should the contract fall through and mitigates any slow payment on the back end. Other payment terms to consider include kill fees, late fees, and milestone payments. This blog post offers more tips on how to use your contract to protect your financially.
Take your terms seriously. Make a point of getting your client to confirm that they agree with them and, more importantly, that they can honor them. The ball is in your court at this point because the client wants your services, so use this to your advantage.
Don’t Delay Invoicing
This sounds incredibly obvious, but many small businesses miss their own billing deadlines because they can’t get their act together. If you’re a freelancer, set a block of time in your calendar once a week or twice a month to issue your invoices.
If you invoice a client as soon as a project is complete, do it. Use your contract terms to define project completion. This could be receipt of the final work or once the client approves your deliverable.
Be a Record-Keeping Whiz
Invoicing becomes much easier if you keep accurate records. Whether it’s tracking your hours (online tools can help), keeping a note of materials used, or accounting for any overages.
Online invoicing software like Harvest ($12 per month for three users) can help track time as well as create and send invoices online. More sophisticated accounting tools like FreshBooks, QuickBooks, and Xero can also help automate the billing process and are especially useful for tracking invoice views, payments, automatically issuing late payment reminders, and more. Here’s some more info about how and why to move to an online accounting system.
Issue Invoices that Get Paid Faster
One invoice is much like another isn’t it? Well, no. There are some specific ingredients that go into the perfect invoice–one that will get you paid on time, if not faster. Here’s what you need to include:
Number every invoice
Each invoice should have a unique identifier to help you better track what’s paid and what’s owed.
Include the client PO number
If you’re working with a larger client, they will often issue a purchase order (PO). Be sure to include this so that they can process your invoice quicker.
Provide detailed product/service information
Include the details of the project, the date project was delivered, and the total cost, including applicable taxes. If you bill by the hour, state the number of hours worked and the hourly rate alongside the project.
Itemize where possible
If the project involved sub-parts, include these in itemized detail. For example, a writer could break down the time taken to conduct research, interviews, creating the first draft, and edits. This also helps demonstrate the value you deliver.
Attach the signed contract or SOW
If this is a new client, it’s worth attaching the original signed contract or statement of work with your invoice.
Offer online payment
According to Harvest, businesses who offer online payment options get paid nearly 16 days sooner (twice as fast).Popular platforms include PayPal, Selz, and Google Wallet. For global payments, consider Payoneer or Stripe.
Smart invoicing isn’t rocket science, and it’s something all business owners, large or small, can integrate into their business processes. Don’t stop there though. Put processes in place to track payments. If you use a spreadsheet, enter the details of every invoice issued. Include the following: client name, project description, date issued, invoice number, and amount. Then add a check box to track that payment has been received and the date.
As your business grows, consider and online accounting system. By automating the receivables process, you can save yourself a lot of time and heartburn!