As just about any business owner will tell you, invoicing customers isn’t always their favorite part of their to-do list. In fact, in a recent study 23% of respondents said that collecting outstanding invoices is their biggest business challenge. To make matters worse, more than a third of B2B receivables aren’t paid on time. While these numbers seem alarming, there are a few key strategies to keep in mind to help collections (and cashflow) move faster and smoother, and it all starts with invoicing. We thought it would be helpful to give you some best practices for how and when to invoice your clients. Consider these our tricks of the invoicing trade.
Make invoicing a routine. This is our number one tip, and something you should consider implementing…starting today. Establishing a predictable, steady routine helps customers know exactly what to expect and when to expect it. However, in order to start your routine (and therefore one for your clients as well), it’s important that you determine 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.
Consider asking customers to pay upfront. Interestingly, there’s a growing trend these days 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 because the customer has already committed to the term. Plus, 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. Of course, one of the biggest benefits to collecting invoices annually or quarterly is an improved cashflow. With more funds available from the get-go, you can reinvest in your company and make comfortable, confident decisions about hiring, product development, or other growth strategies.
Be aware of your business type. For example, if you bill for time, when you send your invoices makes a huge difference in your accounting 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. 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 difference on when you get paid! Be sure to look at when your service period begins and determine your billing cycle based on that. Otherwise, you’re setting yourself up for cash flow issues. Essentially, determining exactly when to send your invoice matters, and it matters a lot.
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 your invoices, your customers can predict when to pay them. A win-win for everyone.