Invoicing your customers isn’t just another item on your to-do list. It’s pivotal to your bottom line. According to the Bureau of Labor Statistics, 53% of small businesses rank cash flow as their top business challenge. All businesses need a consistent stream of money entering their business in order to offset bills and other expenses.
While many small businesses send out invoices, not all do it correctly. It’s not uncommon for customers to receive a sloppy invoice that’s difficult to make sense of or on an inconsistent schedule. When it’s tough to determine what they’re being charged for or how they should pay, customers won’t feel compelled to make it a priority. So we thought it’d be helpful to give you the top tips to streamlining your small businesses invoicing process. Get invoices out the door faster and start getting paid sooner rather than later.
Utilize tools to generate branded invoices and easily pull records on each project.
With the right invoicing tools, all the necessary information will be readily available when it comes time to generate an invoice. Plus, you won’t mistakenly leave out any minor charges. Today, it’s more important than ever to brand your invoices with your logo and company colors so your clients know who the bill is coming from. They are getting a lot of noisy requests in their inbox each day, so make yours stand out and get paid faster than the rest.
Some tools like Xero, Stripe, and Chargify can even help you generate recurring invoices. Your customers enter their information directly, so there are no liability issues for you. These tools also ease the dunning process. This means that even as your customers’ credit card information is constantly being updated, you will have an automated process in place to work out these details with the cardholder in advance. This helps you save time and money on collections, due to incorrect card information.
Carefully consider what types of payment you want to accept.
If you are not already, we highly recommend accepting credit cards. It’s typical to have a merchant fee of 2% to 3%, but if you have 2/10 net 30 that turns out to be the same amount. Plus, it’seasier for your customers to pay on time with an online option. Think of all the follow ups you won’t need to remember and the admin and collection costs you’ll save. That just might carve out some resources for you to get back to your core business. Imagine that.
Be savvy with your payment terms.
Customers tend to pay late, so it’s best to set up terms to help you get paid as quickly as possible (and even sooner than you need the money). There are 3 common types of payment terms you need to know about: on demand, net 15 and net 30. On demand means that as soon as you send the invoice, the payment is due. Net 15 is the most reasonable and what our team at Acuity most frequently recommends for our clients, although net 30 is most common. Some vendors, even at net 15, might assume they have 30 days to pay the invoice – so go ahead and implement net 15 to cash in on the early birds.
You can also consider offering a discount if an invoice is paid early. Larger companies such as Fortune 500 and 5000 will expect a discount. We recommend offering 2/10 net 30 payment terms, or a 2% discount for paying within 10 days (due within 30 days). If you happen to be working with Fortune’s top 10 companies, they could have payment terms as far out as 45 to 90 days. Pro Tip: Be careful with these types of payment terms, since waiting this long for payments can make it hard to run your operations.
Don’t put off sending an invoice.
Waiting to send an invoice not only compromises your cash flow but could force your customer to do some tough reconciling of their own. Make it a routine to generate new invoices on a regular schedule as well as follow up on existing ones.
Let your customers know your invoicing pattern, too. Pick a day of the week or month, and stick to it. When your customers know when the invoice is coming it’s likely they won’t be caught off guard and you’ll be able to predict payment trends. Monthly is the most common increment of time to invoice your customers, but make sure you’re invoicing for the following month (rather than in retrospect) so you avoid cash flow issues. Never forget — your goal with invoicing is predictability.
Establish a routine for follow ups.
We can’t stress enough, how important it is to create a built-in collections process. Having a procedure in place will save you time, money and headaches by providing structure to your business. Don’t leave money on the table – automate your follow-ups.
- PRO TIP: Reach out with the method they prefer to use. If they are an avid emailer, shoot them a reminder email. If they like to hop on the phone to talk through things with you, call them to follow up on the invoice.
Getting customers to settle their invoices is a critical objective for small business owners. By adopting a proactive approach with invoicing and collections, you will ensure that you have the capital to keep reaching your goals and scaling your enterprise.