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A well-defined invoicing and payment process ensures you get paid the right amount at the right time. Timely payments are critical for nearly all businesses to maintain a healthy cash flow. Too many delayed payments can cripple operations due to inadequacy of funds.
A robust invoicing system is critical to ensure your customers understand what they are paying for, how much they owe you and when payment is due. Here are some invoicing best practices all business should be following to ensure prompt payment:
1. Negotiate payments terms with clients upfront
Before you send your client an invoice, you should have already agreed with them the exact amount of money they owe you for your services. This is not difficult and can be accomplished during a defined quoting process.
When a client expresses interest in your services, you may need to first have a discussion with them about exactly what they want and how you can meet their needs. This may even involve going to visit them so assess the problem or proposed job. At this point, an estimate or quote can created which details the various line items and the related charges. For consistency and efficiency, its best to use something like this free service invoice template from Jobber which can be fully customized with your company name and logo, business information, and terms and conditions etc.
Once this has agreed, you can convert it into an invoice and email it to the client. This enables you to cut down on admin time. Since the template can re-used every time a quote required, and easier for customers to pay as they’ve already through the details with you and agreed on the work.
2. Clearly specify the due date
It’s common practice for businesses to use terms such as Net 15 or Net 30 on their invoices. While these are universally accepted invoicing terminology, some of your clients may not understand them. Make a point of using simple, everyday language that leaves no room for misinterpretation or queries. For example, you can state, ‘payments due by December 25, 2021.’ This way, your customers will have no excuse for non-payment because of vague terms on your invoice. (1)
3. Offer discounts for early payments
Another tip on mastering the art of the invoice process is to reward those customers who pay early. According to the Pleasure Principle, most people pursue pleasure and try to evade pain. Being rewarded for early payment is something pleasurable. But missing on the discount is painful. Thus, an average customer will do everything within their means to pay promptly and grab the discount. (2)
4. Handle late payers appropriately
As mentioned above, it’s everyone’s goal to avoid any mishaps. On this account, you can consider imposing late payment fees for those who fail to fulfill their obligation by the pre-defined deadline. As long as you clearly state this in your contract terms and conditions, clients will work hard to avoid this.
5. Diversify your payment options
According to the International Trade Administration, businesses need to offer appropriate payment methods to succeed in today’s global marketplace. By overlooking some payment options, you can lose potential business to competitors. (3)
The same applies to invoicing. If you restrict your customers to just one payment option, they might postpone making payments as they figure out how to start using your preferred method. Digital payments are one way to make customers pay on time, but that might take a while to implement for your business. To avoid these setbacks, consider offering several options to your customers, including but not limited to the following:
- Cash
- Checks
- Credit or debit card payments
- Mobile payments
- Online payments
- Bank wire transfers
- Money orders
- Email transfers
6. Proactively chase payments
It would be a mistake to sit back and hope that your customers will make payments to you on time. Set a polite reminder date a certain number of days after sending an invoice that payment is still outstanding. Invoicing software is now highly sophisticated and the process for this can now be automated. By taking advantage of this kind of technology, you can be saving yourself a lot of admin work.
Conclusion
Proper invoicing best practices ensure you are far more likely to get paid promptly for your services. Subsequently, your business operations proceed seamlessly as you have the requisite cash at hand. By following the tips mentioned above you will stand a much better chance at maintaining a healthy cash flow and sustainable business as a result.
References
- “How to Adjust Invoice Payment Terms in QuickBooks Online”, Source: https://quickbooks.intuit.com/learn-support/getting-started-with-quickbooks/how-to-adjust-invoice-payment-terms-in-quickbooks-online/ta-p/170197
- “The psychology of discounts”, Source: https://yoast.com/psychology-discounts/
- “Methods of Payment”, Source: https://www.trade.gov/methods-payment