Secure and simple invoicing is crucial for any business. In addition, an effective collection process to get those invoices paid is essential for steady cash flow.
Unfortunately, a MarketInvoice study found that 60 percent of invoices become past due. Among the 80 countries involved in the research, Australia has the worst statistic. That’s dangerous!
The length of time it takes to convert invoices to cash can make or break your business. This simple invoicing guideline will help you understand the process better.
Be Upfront About Payments and Billing
Each time you receive an order from a client, make your expectations and requirements clear.
Discuss the payment terms and billing details upfront. These things should also be detailed in your contract. You should also include payment requirements on the quote you send.
Irrespective of how you disclose the payment details, it should include:
- When are payments due? Is it after completing the project? Can payments be weekly, bi-weekly or monthly?
- What modes of payment will you accept? Can clients pay through credit card, direct bank deposit, Paypal or a similar service?
- Is there a penalty for late payments? How much will it be? Is the late payment surcharge a percentage of the total price? Is it a flat rate?
Billing for Services Rendered
- Will your charge be a flat rate based on the entire job or project or an hourly rate?
- Will you require a deposit before starting to work on the project?
- Are there additional charges beyond the agreed milestones?
Make the ‘Recency Effect’ Work for You
People are more likely to remember and take action when an act is fresh on their mind. This is known as the ‘recency effect’.
If you’re sending an invoice, do it immediately after delivering the products or rendering the service. Remember to remind your customer when a payment is due – don’t wait until the payment is overdue.
Set Up a Collection Process
Simple invoicing is just one part of the collection process. To convert those invoices to cash, follow a process that suits your business. For example:
- Issue the first invoice preferably after completing the job.
- Call the client regarding the account due date
- If the invoice isn’t paid by the due date, follow up immediately for commitment
- Be prompt about following up the invoice until it is paid in full
Remember that the older an invoice gets, the more likely it won’t ever be paid.
Dedicate a day (a better idea is to split it over two days – a week doesn’t have much of a ‘recency effect’) to follow up clients with due accounts. Keep a record for each client to know the status of each account.
Know What a Valid Invoice Looks Like
Simple invoicing is not just about ease. You also need to issue a valid tax invoice. For example, the Australian Taxation Office has specific rules for this.
If your invoice is less than $1,000, it needs to have these seven details:
- “Tax Invoice” written on the document
- Business or company name
- Australian Business Number or ABN
- Invoice date
- A brief description detailing services rendered or products sold. Include the price and, if applicable, the quantity
- The amount payable for Goods and Services Tax (GST), if any
- GST applied to each item.
How to Submit Your First Invoice
It’s always worthwhile to build rapport with the accounts payable department. So, make yourself known to them when you send an invoice to a first-time client. Introduce the business and indicate the services rendered or products delivered.
Simple Invoicing Tips on Issuing Unique Codes
Use a unique invoice number. If you don’t provide a unique code, reconciling the account can be a nightmare for both parties.
Here are some suggestions on how to come up with an invoice number:
- Sequential Order – 001,002,003,004,005.
- Chronological Order – Follows the format YYYYMMDD-JOB NO or 20190118-00001
- Project number – Follows the format JOB NO-PROJECT NAME or 00001-GreenFields.
How to Present Your Invoice
Simple invoicing doesn’t mean boring. With a bit of creativity, a formal invoice can serve as marketing material.
Extend your branding to the invoice design. Make sure it is legible, and all the details are clear.
Always remember your payment terms!
Use Automated Tools to Manage Invoices Effectively
It’s easier to manage invoices with a tool. This tool should allow you to:
- check the aging of accounts
- see the status of an account
- update account status
- view the summary of past due accounts
- access simple invoicing features
- send a quote or estimate
Several financial tools are capable of doing this. Most of the online tools even allow you to share your financials to your accountant. Some even integrate the full accounting system.
If you’re not sure about using these tools, use alternatives capable of simple invoicing. For instance, you can send invoices and request payments through Paypal.
Collecting Overdue Accounts
Getting compensation for goods and services is your right as a business owner. Be proactive about collecting payments on time. If you aren’t, you run the risk of running short of cash flow which can cause serious headaches.
Remember, simple invoicing and collecting payments is necessary to run a thriving business.
To your business success!