The Ultimate Guide to Invoicing For Small Businesses
The service has been rendered, the product has been shipped, now it’s time for the next step of the cycle, issuing your invoices and receiving payment! This past week we released our Invoice Checklist to break down the how and what to include in your invoice to comply with CRA requirements. The checklist is a great starting point for invoicing but that is just the first step in the road to getting paid, and getting paid on time.
Invoices are more than just a bill for your client after the deliverables are met, they are useful tracking tools for your records when it comes to accounts receivable, deposits vs. outstanding balances, year-end tax filings and even business trends. Knowing how much your clients have owing could help you make a decision about future cash flows. Having a running tally of what you’ve sold , allows you to identify a pattern of what is being purchased and during what times of the year. One thing that is apparent in every business is the detrimental ripple effect past due payments can cause to a small business, so we pose the question - how do you set yourself up for payment success?
Timing is Everything
When an invoice is sent plays a large part in when the funds will be received. The invoice date is dictated by the type of offerings provided. By knowing what you’re selling you can create a blueprint for the type of payment cycle you will set up with your client. Will it be billed at each milestone? Such as contracts for a construction project, or in advance for a service sold, or perhaps on a retainer basis or after the deliverable has been met? Regardless of what payment terms have been agreed upon, this has to be communicated to your client along with the due date. Having all parties on the same page is one way to ensure payment will be made on time as the terms have been outlined clearly.
There is also some psychology at play in the correlation between when an invoice is sent and how quickly payment is received. Invoices tend to be paid quicker when sent before or after the workday is completed as people tend to want to get less tedious tasks completed before they start or wrap up their busy day. It is also a good idea to avoid sending your invoice on a Friday night - right before the weekend when many clients may forget about it. The most important timing rule to remember is do not wait. A long lag time will lower the chances of receiving a timely payment, when your client senses it’s not a priority to you, they jump on the chance to respond in the same accord.
Technology as a Helping Hand
For the benefits of invoicing to work effectively for your business, the invoice will need to be consistent and your records will have to be accurate. This can be difficult when manually keeping track of what has been sent out and what has been received. This is where technology makes all the difference! - There are many invoicing or bookkeeping programs or apps available that can take care of the sending, tracking and reporting the invoice and payments you receive: While we recommend Quickbooks Online, there are others such as Stripe, Fresh Books and Invoice Berry that might suit your needs.
Automating when invoices are sent and reminders for due dates can be a big step in ensuring your client has received your invoice in a reasonable time frame, but to also create consistency of billing and payment. By creating this pattern the client is more likely to be able to pay when the invoice is sent as they are now expecting it. Another advantage an invoicing system provides is the ability to pay in multiple ways, by giving your client different methods of payment whether it be through Interac, credit card, pre-authorized debit etc. You are more likely to get paid sooner because your client will be able to pay using the method that works best for them.
At the end of the month, all of these inflows will be accumulated in the reports created by apps (such as Quickbooks Online), giving you insight into where the business is thriving and which areas need more marketing power. These reports will also give a bigger picture of who is not paying when they should - another important step for future payments. You may need to set up a different mode of payment if someone is consistently late or negotiate a new invoicing term with them to make sure future invoices will get paid in a timely manner. Luckily an automated system will give you the tools to do just that.
The Reputation of the Brand
Lastly and possibly one of the most important steps in creating trust and a reputation with your clients is the brand itself. Social media, business cards, flyers and your website all have your logos, colours and identity woven into every corner - your invoices shouldn’t be any different. Clients need to clearly know who the invoice is coming from, and they also need to trust your business as a whole. By adding your logo and brand colours to the invoice, your clients will easily recognize your communications and with each statement sent, you build a reliable reputation, making clients more comfortable with sending the money they owe.
When adding colour and personality (your brand) into your invoice, customers are drawn to it and feel more at ease when facing what can be a large amount to be paid. This ideology also goes for messages and thank you’s at the end of the invoice, being generic can come off as cold. By adding your business’s flair to these seemingly little aspects, you will build rapport with your client that could mean the invoice will be marked as paid faster than if it shows up in a client’s inbox as just another standard debt to be owed.
With these tools in mind, it is important to know your business and how an effective invoicing process can be used in conjunction with your deliverables and business model. When in doubt make a plan, and if your current method of invoicing falls short, it is never too late to change it. Your business’ time and energy does have a price tag so be sure to develop and stick to an invoicing plan so your records can read ‘payment received’!