Most business owners will tell you that invoicing customers is not their favorite item on their to-do list. But in order to have collections (and cashflow) move faster and more efficiently, it starts with invoicing.
That’s why we’ve compiled a couple of best practices for you to implement, such as how and when to send an invoice to your clients. Consider these our tricks of the invoicing trade.
When to send an invoice…
If you’re asking yourself when to send an invoice, we suggest you start by determining your accounting schedule. If you choose to invoice weekly, determine a day of the week to send your invoices and stick to it. If you choose to invoice semi-monthly, indicate two invoice days (like the 15th and 30th) and send invoices on those days only.
A monthly invoicing system is the most common, but it’s best practice to send the following month’s invoice on the 10th or 15th of the current month. Implementing invoicing automation will only make for more organized accounting and better cash flow.
When you send an invoice affects your accounting process
It’s important to be aware of your business type when structuring your invoicing process. If you bill for time, we recommend sending your invoice on the first of the month for a few reasons. First, if you bill on the first of the month, you’re ensuring that you’re getting paid by the 30th. If you wait to invoice for the previous month in the current month, say, billing for May on June 10th, you’ve already incurred costs for May, and you’ve waited to send your bill until the following month.
Now, there’s a chance that you might not receive the payment until July 10th (30 days after your invoice was sent). In some cases, an invoice might take 45 days (or more) to be reconciled. Thus, billing monthly can mean a 45-day difference on when you get paid!
We highly recommend looking at when your service period begins and determining your billing cycle based on that. Otherwise, you’re setting yourself up for cash flow issues. Essentially, determining exactly when to send an invoice matters, and it matters a lot.
Consider asking customers to pay upfront
Interestingly, there’s a growing trend for SaaS companies to bill quarterly or even annually, often called “customer funding.” These businesses are able to get paid upfront while avoiding late payments or collections issues. Payment is guaranteed for the duration of the contract, and there is no question of the contract being severed since the customer has already committed to the term.
In addition, these companies don’t have to direct attention or time to angel investors or fundraising. Money is already accounted for and ready to be used. And everyone wants better cash flow, right? With more funds available from the get-go, you can reinvest in your company and make comfortable, confident decisions about hiring, product development, and other goals on your radar to grow your business.
All of these tricks of the trade will help make your accounting smoother and more manageable. Remember, it’s all about predictability. In the end, predictable invoicing is the best way to invoice customers. If you can predict when to send an invoice, your customers can predict when to pay them. A win-win for everyone. For more tips on streamlining the invoicing process, check out our blog post here.
When should you issue an invoice?
It depends on a few things! These include: your accounting schedule, when your service period begins, and your business type/how you bill. For more insight into our tips and tricks, scroll up and read about what we advise for when to send an invoice. You can also find more information in our blog post: Streamlining the Invoicing Process.
Can you send an invoice before work is done?
We recommend waiting to send an invoice until after your work is done. It’s the most common way for service businesses to invoice, and that’s for good reason. Plus, most customers expect to pay after, not before.
We get it. Invoicing before a job is complete, or even started, could seem like the way to go – get paid upfront and cash flow stays steady. It starts to get tricky, though, if the job outlined on the invoice changes. What if you need to bill them for more hours? That just made your life harder than if you’d waited to send the invoice.
How late can I send an invoice?
The statute of limitations depends on the type of contract (oral or written) as well as which state you’re in.
Perhaps the better question here, though, is how late can your business wait to get paid?
Let’s just make it easier for you and say you shouldn’t wait nearly long enough to meet the statute of limitations. The sooner you invoice, the better it is for everyone – you’re not out cash you need to operate your business, and your customers aren’t throwing off that month’s budget to pay your late bill.