When it comes to invoicing, small business owners don’t have it easy. Firing off an invoice the second a project wraps up may seem desperate and unprofessional. Waiting politely for weeks could interrupt your cash flow.
So when is the best time to invoice? Like most important decisions, the answer is: That depends on the client and the type of work you do.
Here are a few common scenarios:
Invoice upon purchase
If you provide goods like handmade shoes or services like cleaning, you’re not likely to send your customer an invoice by email or post—you’ll expect payment on the spot. And they’ll be prepared to pay you in cash, by check, debit or credit card.
Invoice upon project completion
If you’re providing tech services or are a consultant or writer, you’re probably working with B2B clients on projects that may take anywhere from a few hours to a few months. While it may be tempting to invoice the second you submit your work, it’s best to wait at least a few days. There may be questions, feedback or revisions to make. Let the project come to a natural conclusion before sending an invoice.
Invoice at pre-determined milestones
When you’re working on a large-scale, long-term project, it’s smart to negotiate payments at pre-determined milestones. This will allow you to purchase any necessary materials and ensure you have adequate cash flow while a portion of your time is tied up with one project. The key is to clearly define the project stage or date for each invoice.
Invoice weekly, bi-weekly or monthly
Do you have clients who call on you for hourly project work off and on all the time? Ideally, they’re paying you a retainer—a pre-defined amount of money every month to reserve your time. If not, preserve your cash flow and invoice regularly. Weekly is best, bi-weekly is okay and monthly is a last resort and usually reserved for larger companies who don’t want to process multiple payments every month.
Timing may be important when it comes to invoicing, but it’s not everything. Your payment terms go a long way to getting paid as quickly as possible. The number of days your clients have to pay after you submit your invoice will vary depending on your business and the type of customer. Common payment terms include:
Pre-payments and deposits
If your customers are B2C, start-ups or businesses that have a history of late payments, there’s nothing wrong with requesting payment up front, or at least a deposit before you begin work.
7 to 10 days
Just a few years ago it was unheard of to request a payment in under 30 days. But credit cards, PayPal, WePay and other e-forms of payment have made settling up easier than ever. You’re probably not going to get the big company with a robust payroll department on board with one-week payment terms, but there’s no reason not to try with smaller businesses.
By far the most common payment terms for small businesses, a month seems reasonable for payer and payee. It gives commercial customers time to get their paperwork sorted out and shouldn’t impede your cash flow too much.
It’s not recommended to have payment terms of more than 30 days – but sometimes it’s unavoidable when working with companies with rigid accounts payable policies. The silver lining is that these organizations usually pay on the higher scale. If they don’t, reconsider working with them.
Although how quickly a client pays up may be somewhat out of your control, there are a lot of little things you can do to encourage quicker payment, including:
Use accounting software to create and track invoices. A professional-looking invoice that features your logo, the units of hours/good, hourly or flat rate and payment terms is critical for all small businesses. A good system will help you churn out invoices faster and keep track of them for you, so you always know exactly how many days till a payment is due.
Discuss payment terms before you start. Your clients should know exactly what they owe (or at least a very close estimate) before they open your invoice – including when it’s due.
Offer online payment. It’s more convenient for your customers and helps you get paid faster. Most accounting software allows you to accept credit cards, PayPal, e-transfer and other online methods of payment.
Automate late payment reminders. Another good reason to use formal accounting software – it’ll do your “dirty” work for you, including following up with tardy clients. Simply set your payment terms, write a template and get down to other business. It’ll know when to blast an email reminder.
Charge late fees. Sometimes the best way to motivate clients who are slow to pay is to levy a surcharge for late payments. A simple 1-2% usually does the trick. Be sure to build it into your invoice with clear payment terms, including the date when late fees will be applied.
Invoice regularly. You can’t blame clients for cash flow problems if you’re the one who’s late to invoice. Yes, invoicing is kind of a hassle, but it’s important to stay on it. The sooner you do it, the faster you get paid.
Be polite. According to FreshBooks research, being polite matters. A lot. A simple “please pay your invoice within” or “thank you for your business” can increase the percentage of invoices that are paid by more than 5 per cent. Incorporate the magic words into your invoice and make more money.
When it comes to knowing when to invoice and what kind of payment terms to demand, there are no right or wrong answers. Know your clients, trust your instincts and be prepared to negotiate and be flexible in different situations.
This guest post was written by Heather Hudson of FreshBooks for Fundbox. FreshBooks makes invoicing and accounting painless for millions of small business owners.