Preparing invoices might be one of the most important tasks you perform as a small business owner. After all, invoices are the first step in generating the income your business needs to run smoothly – not to mention help you pay personal bills like mortgages and health insurance. When small business invoices are done correctly and professionally, sent promptly, and followed up on regularly, your cash flow will be healthier.
What you don’t want is to have a slew of invoices that are not getting paid: The average small business is waiting for about $5,000 in overdue payments every month. Good invoice habits can help you ensure that you aren’t sitting on a bunch of unpaid invoices, and that you have good records to help you follow up on late payments. And good invoicing software can also help by sending automated reminders or supplying helpful reporting so you know who owes you, how much they owe, and when they should have paid you. Detailed invoices will also help you avoid disputes with clients about what they are paying for and when. As tax time rolls around, invoices and payment records will help you quickly round up income data for your accountant.
The do’s and don’ts of small business invoicing
Invoices are one of the ways you can impress customers with your professionalism and timeliness. Every point of client interaction is a reflection of how you do business, so make the most of this opportunity.
Always make sure the customer is expecting an invoice and that the document clearly spells out charges and what they are for. Invoices should map back to your price list or original estimate, which conveys predictability to your customers. If the total invoice exceeds the estimates, or there are new charges, explain the difference to customers before invoicing.
The date of the invoice should be the first thing visible on an invoice after your business’s logo and contact information. The date should be prominent, letting customers know that the clock is ticking for payment. Also, make sure that dates for completion of work or delivery are part of invoice item descriptions.
- Do follow up on overdue payments
If you have not heard from your customer after sending an invoice, follow up. Sometimes mailed invoices can get lost, or electronic invoices can end up in a customer’s spam folder. Once you know that a customer has received an invoice, start tracking the days and weeks until your payment date, which should be clearly stated on the invoice (15 days, 30 days, etc.). A clear deadline is essential because it gives you a basis for follow-up in case of nonpayment. If you don’t clearly state the expected payment date, it’s painfully easy for customers to put your invoice at the bottom of their bills pile. When the due date has arrived with no payment received, re-send your invoice and add a note that it is past due. Invoicing software can assist with this task by automating reminder emails.
- Do pay attention to design – but go for clarity
An invoice is an important public face for your business to your customers. It should showcase your brand and include identifying features such as your logo. But the content is more important than the visuals – an invoice is not the place to get cute. Make sure that above all, the information is clear and easy to understand.
In some areas of customer communication, less may be more – but not when it comes to invoicing. Listing itemized products or services, fees, expenses, costs, and relevant dates not only reduces disagreements, it ensures you’ll be paid what you deserve and that your customer understands the value you’ve delivered. And of course, make sure there are no errors; you don’t want to field calls from customers wondering why the invoice total is incorrect.
- Don’t be timid about sending invoices
Asking for payment can feel awkward, especially when you’re just starting out in business. When you confidently seek payment for your services, you show customers that you value your own work and believe in the products and services you’ve delivered. You’ve already won business because customers have asked for your goods and services. The invoice shows that the work has a real-dollar value.
Don’t invoice too soon – that is, before an agreed-upon milestone has been completed, the project is complete or the product is delivered – or too late, weeks or months after you’ve wrapped up work. Customers should receive invoices while the product or service is fresh in their minds, so that the invoice isn’t an unwelcome surprise. Invoicing promptly displays professionalism and confidence, and sends the message that you likewise expect prompt payments.
What to include on an invoice
Every invoice should have the following information:
A unique number – like #5-2019 – helps you keep track of how many invoices you’ve sent a client. Also, in the event an invoice goes unpaid, it’s easier to track down which one by searching for the number. (Numbering invoices can help your customer find missing invoices and payments as well). And, come tax time, numbered invoices will help you avoid missed income data.
- Your business’s contact info
Include pertinent information for your business, or if you have a bookkeeper or other accounting contact, include that person’s name and contact information. That way, if customers have questions about invoices, they can quickly reach out to the right person.
Whenever possible, address your invoice to a specific person, including name, email address and phone number. In the event of nonpayment, you can follow up with a real person instead of a department.
Your customer may need your Tax Identification Number, or TIN, for their own accounting purposes.
Clear and obvious dates for the purchase or service, for invoice sent, and for payment due will keep everything clear for your customer and let them know how much time has passed between invoicing and payment.
Include details of what you are charging, noting the differences between product costs, supply costs, hourly charges, or transportation expenses. Include details like descriptions, dates, and locations associated with charges, as appropriate. This will make it clear to the customer what they are paying for and how you arrived at the total, and will also make it easier for you or your accountant to reference invoices at a later date.
If your business has to pay local or sales taxes on goods and services, break out these amounts on a separate line and include the tax rate percentage.
Make sure this line is hard to miss – consider using bold type for emphasis.
- Preferred payment method
If you want payment by credit card, check, or via online payment services, spell it out. Using electronic invoicing with the ability for your customer to pay online with a credit card is a great way to get paid quickly while the invoice is still top of mind.
It’s never a bad idea to thank customers for the opportunity to do business with them. You can also add a message about contacting you if they have questions or concerns.
How to generate and send invoices
Should invoices go out on paper or electronically? There’s a lot to be said for relying on digital tools for easy invoicing. For one thing, “digital trails” tend to be more reliable than “paper trails.” It’s painfully easy for you or your customer to lose a physical invoice and have no other record of it. When you generate electronic invoices – especially if records are stored online in the cloud – the files are easy for you or anyone else with access to the system to refer to when needed. Digital invoicing tools can integrate with financial, accounting, inventory and other software tools, making it easier to create, access, and track your full business processes, as well as collect necessary information come tax time.
Digital invoicing systems also offer templates that you can easily customize for your business. This ensures that your invoices maintain a consistent and professional look and represent your brand well.
One of the major benefits of electronic invoicing is the ability to allow your customers to pay by credit card from anywhere. Most invoicing software offers this feature, for a cost. Credit card payments may allow you to get paid faster, since there’s no need to mail an invoice and wait for a check to arrive. Also, since payments are processed electronically, there’s less physical cash to manage, which is easier and safer for your business. And finally, you’ll have fewer billing processes to handle, and greater visibility into your company’s cash flow.
When it comes time to send invoices, the easiest option is to generate them using invoicing software or apps. The alternative is printing or emailing manual invoices created in word processing software. There are many downsides to doing this, however, including lack of tracking and reporting, doing manual calculations, and waiting for check or cash payments.
Whatever method you choose, avoid simply dropping a list of charges in an email. It’s not a very professional presentation, and it’s too easy for information to get chopped up or lost as the email gets forwarded to the right person for payment.
Don’t assume that customers:
- Are happy simply because they paid an invoice. Right after receiving payment is the right time to reach out with a thank you or an offer to do future work.
- Are expecting your invoice. Only send invoices when customers acknowledge that they’ve received all goods and services, or when an agreed-upon milestone has been reached.
- Received an invoice. If you haven’t enabled confirmation of receipt, or heard from your customer, check in.
- Will pay promptly. It’s up to you to make payment terms and deadlines crystal clear.
- Expect you to raise prices occasionally. Tell customers before invoicing if there are higher charges than expected, or that they’ve seen in the past from your business.
Invoicing is good for your (business) health
Invoicing isn’t just paperwork. It’s vital to the health of your business, since your invoicing practices have a direct impact on cash flow. Follow the best practices above and you should see a steady increase in your business funds – money you can use to grow your business.