If you don’t invoice your clients, your business won’t get paid. It’s as simple as that. Invoicing should be an integral part of your business. The question is, how do you improve the invoicing process? Let’s go through some ideas about when and how to invoice well. But first, you need to understand your business workflow.
Your business workflow
Most small businesses have a basic workflow:
- Reach out to leads or existing customers, or wait for them to contact you
- Close the deal
- Fulfill the order
- Collect payment
This is only a general overview. The specifics will vary from one business to another, and each element has its own tasks and challenges.
Your business may even have several orders happening at once at different stages. For instance, you might be near the end of one job while working halfway through another job. But looking at this workflow overview will help you identify when to invoice your clients for each job. Some businesses bill right after fulfilling the orders, but this isn’t always ideal.
When is the right time to invoice?
There isn’t a right answer because each industry is different. You need to rely on your knowledge and experience to determine the best time. If you wait too long you risk having to chase late payers, which will negatively impact your cashflow. If you bill too early you may risk offending your customers. Some customers may not appreciate being asked for money before the job is finished.
To avoid having too many late payers, it’s important to that you set the expectation upfront and agree on the payment terms. Afterall, it is your job to ensure your business gets paid and you should remind customers to pay on time. You can encourage customers to pay on time by including a service charge on late payment.
Here are some suggestions on when to invoice. Remember, only you can decide what’s right in the context of your business. It may take several tries and some trial and error to find the right time. These suggestions will point you in the right direction:
When work is completed
This is common for restaurants and retail businesses. If someone buys from you, they must pay there and then. The exception is when you offer credit, either yourself or through a financial intermediary. But that’s usually reserved for trusted clients or customers who you know will definitely pay.
This approach may work for other sectors too. It’s good to get into the frame of mind that your business deserves to be paid quickly. If you deliver high quality work and your clients value your services, they won’t mind being invoices as soon as the work is done.
When contract is signed
Some businesses are able to invoice at the commencement of the job. If you have been asked to fulfil a major contract that will involve substantial investment of time and materials costs, it makes sense to bill at the start. After all, your business is making a huge financial commitment, and so should your client.
However, it may not be practical to charge for the full cost of the job all at once. But it’s certainly fair to bill for up-front costs. Don’t put your own business in a dangerous spot by taking on debt to cover those costs. Your client should cover them instead.
If the job requires an extended period of time to complete, you can also invoice during the work. Identify the milestones and agree these with your customer in writing before you start.
Businesses often go bust due to cashflow issues. One of the main causes is failing to charge promptly for major client costs. That’s especially true when the client then goes bankrupt or changes their mind, which happens all too often. Remember, the final product will be owned by the client therefore the financial risk should be borne by them too.
At set intervals
This doesn’t mean bundling all your invoices together and sending them at the end of the month. Surprisingly a lot of businesses still do that, but it makes little financial sense. If you complete a job in the first week of the month but only invoice at the end of the month, your cashflow is being severely impacted. Avoid this approach as much as possible since cloud invoicing lets you bill clients almost instantly, and you can tailor the process to each client.
Use technology to do the heavy lifting
If you are still creating invoices in spreadsheets and sending them to clients by email, you need to stop. There is a much better way to spend your time. With cloud invoicing, you don’t need to print anything or create email attachments. You can send online invoices from directly within the cloud accounting system. There are many advantages to this approach:
Invoices can be sent automatically by setting up a recurring schedule that’s specific to each client. No more calendar reminders – just let the system do the work.
Monitor outstanding balances
You can see in real-time which client has paid and which client hasn’t, with insights on when the online invoice was viewed by the client.
With cloud invoicing, you can send an invoice from anywhere at any time as long as you have access to the internet. You can use a laptop, smartphone or tablet device – whatever suits you, and whenever you want to.
Improved cash flow
Once you have cloud invoicing built into your workflow, you will begin to notice a positive difference on your cash flow. Invoicing at the right time consistently means faster payment, and that’s something every business needs.
Take the time to craft a good invoicing process and incorporate it into your business workflow. It may take a several days to get the process right, but that’s nothing compared to the amount of time and money it will save you in the long run.