By Tracy Vides
If only we all got paid in advance for the work we are about to do! Unfortunately, chasing clients for overdue payments is a dreaded reality of every business. Research shows that no matter what the credit period, on an average, clients pay invoices at least two weeks past their original due date.
Does that mean we resign ourselves to the thought that there’s no way to speed up our accounts receivable? Not really. With some pro-active invoicing steps you’ll never be too far from on time payments.
1. Agree on Amounts Before Starting a Project
Before you begin work on any new project, finalize the amount that you expect to be paid and only then proceed. Put down in black and white, details about how the remuneration would be calculated – hourly, per day, per project – whatever makes most sense for your business.
Invariably, every project has its share of edits, tweaks and additional requirements over and above the original agreement that can change the project cost. When extra work gets tacked on to a project, mutually agree on how much you’ll be charging for the extras to avoid messy conflicts with the client at a later date.
2. Cover All the Bases
Your invoice is the payment document that your client will maintain long after your project has been completed and paid for. By building in the critical details of the project into your invoice, you not only help current payments to move along smoothly, you’re creating a historical record of your project and company in your client’s system.
Every invoice must include a clear invoice number, the date on which the invoice was generated and the date on which payment becomes due. Most large clients issue purchase orders to indicate a purchase in their book of accounts. Include the right purchase order number in your invoice to ensure your invoice meets their system requirements and gets paid on time.
Clarify in an itemized format the individual services rendered or products purchased alongside their corresponding pricing details. Forgetting to include service tax or VAT amounts in your invoice is a big blunder, one that will result in you forking out the service tax from your own pockets to the taxman at the end of the year. While you include the service tax amount, don’t miss out the registered service tax number for your business in your invoice.
Include the name and address of the client on your invoice to avoid ambiguity at a later date. Similarly, include your own contact details so your client has the option of getting in touch for any queries or problems they may have with the invoice.
Finally, make sure you include the preferred payment modes as well as information that help a payment along like your bank account details, a PayPal account number or even a link to your payment gateway to accept payments via credit card. Tara Hornor offers a detailed view of the critical ingredients of a good invoice here.
3. Invest in Invoicing Automation
The most mundane of business tasks (like invoicing!) work best when automated. That way you have plenty of time to spare for things that are central to your business like generating new leads, nurturing existing customers or dreaming up new product ideas.
It does not have to be an expensive affair. There are tons of cheap and free invoicing tools that help you generate professional looking invoices, follow up with clients on overdue payments, even facilitate payments through their own built-in payment mechanisms. If you don’t want the trouble of learning a whole new software for your invoicing needs, at the very least use a simple invoice generator tool such as Shopify’s, which integrates with your point of sale system to give your invoices that professional touch.
4. Attach Proof of Work with Invoices
Unlike a retail business where the customer pays for a physical item that can be quantified with ease, most service based businesses have a tough time showing proof of work accomplished when they bill a client. Depending on the payment terms you agree upon with your client, maintain detailed work hour records, records of email exchanges, a portfolio of all the work that you have done / created for your client during the project period.
Don’t shy away from sharing your work records with your client to lend an added authenticity to your invoicing. The broadcast certificates, click reports and release orders that media companies tack on to their invoices are a great example of showing automated proof of work completed as per agreements.
5. Number and File Your Invoices
It may seem like the most innocuous thing to do, but putting a unique traceable number on every invoice you generate is absolutely critical. It’s shocking how many independent professionals and businesses overlook this essential item over and over again.
Spend some time on developing a numbering system for your invoices that helps you identify the time period when the invoice was raised, what type of work it may have been or even whether it is a one-off project or a retainer fee. Assign a unique invoice number to every invoice based on the numbering logic that you arrive at and remember to file away a copy of every invoice sent out in your own personal records for follow ups later.
6. Invoice on Time, Send Out Payment Reminders
We often forget to send out invoices as soon as a project is completed, especially in cases where finance is not a specialized function; instead, invoicing is managed by whoever has some free time on hand. Avoid falling into this trap of delayed invoicing leading to delayed payments leading to crippling cash flow crunches by automating your invoice triggering process. You could set up invoices to be triggered by a various events, e.g. the delivery of a project, the completion of an agreed project milestone, the end of every month, or whatever business-specific events that make sense for you.
Once the invoice is out of your system, don’t wait till the payment becomes due to contact the client. Auto-trigger emails from your inbox reminding clients of upcoming payments at least two weeks before they are due. Follow up your email with a personal phone call to your contact at the client’s office at the D-1 week mark. This avoids any excuses of invoices being lost or undelivered or worse the client having “forgotten” to process it at all.
7. Thank Clients For On-time Payments
Just as it’s OK to fine a client for withholding payments for unreasonably long periods of time, it’s also necessary to thank those clients who make it a point to pay on time. The personal touch will surprise most clients and the positive reinforcement will hopefully encourage similar behavior in the future.
Have any invoicing aces up your sleeve? Share your ideas in the comments below.