Money needs to keep flowing into your business if you’re going to achieve success. We look at top tips for optimising your invoicing.
Quick takeaways if you’re in a hurry
1. Spending some time adapting your invoices to the needs of your customers could speed up payment
2. By identifying the person who processes the invoices in your customer’s business, you can address your invoices correctly and chase them up effectively
3. If you want to get paid on time then you need to be proactive in your communication with customers.
Read on: 8 invoicing tips that will get you paid on time
(estimated reading time: 5 minutes)
If your business is going to succeed you need to manage your cash flow. That means keeping control of money flowing both in and out of your business. Making sure you manage your invoices as effectively as possible is an important part of maintaining cash flow.
If you’re struggling to get your clients to pay on time then don’t be surprised. A recent Xero study found that the average payment time for invoices is two weeks past the due date. So it’s really important to manage your invoices efficiently.
We’re going to explore eight simple steps that can make invoicing your customers more effective and efficient. Even small changes can have a big impact on your payment schedules. Here are some ways to improve your invoicing.
1. Focus on business etiquette
There’s no harm in having good manners: even if you’re chasing up a payment. Experts in producing and managing invoices frequently reference the positive impact that saying ‘please’ and ‘thank you’ can have on your relationship with your customers. And the better the relationship you build, the more likely you are to get paid.
2. Agree your payment terms upfront
Having clear payment terms ensures that everyone is on the same page. Payment terms should be signed in advance of beginning a business relationship, and should include important details like how many days the client has to make a payment after invoicing. It’s also helpful for your agreement to capture the consequences of late or non-payment.
A common challenge is creating a payment term that’s linked directly to the date that the customer receives the invoice. This isn’t as solid as using the date the invoice was issued as a starting point. Try instead to use terms like ‘payment due 10 working days from invoice being issued’.
Don’t forget to be clear about what type of days you are tracking when you use a number – i.e. working or calendar. It may seem an obvious suggestion but it’s also important to consider when you would like to receive payment. Too many businesses include a 30 day term because that’s what they’re used to. If you want to be paid in 7 days make sure your invoices make that clear.
3. Tailor your invoices to your customers
Investing time in understanding the needs of your customers is time well spent. Different customers may require different information to support their internal processes. You can avoid a request for information delaying your payment if you’re clear upfront about what your customer needs.
Examples of some of the areas you can clarify include: whether your customer needs a purchase order number or if the invoice number is sufficient; whether an employee identification number is required; and whether your customer needs detailed descriptions or is happy with general information on the invoice.
Knowing who to send the invoice to and who manages payment of the invoice is also key. It may even be worth setting up direct communication with the invoice payer so that you can let them know when the invoice deadline is getting close.
It’s also worth investing some time upfront to introduce yourself and your company to the people who will be paying your invoices. Take the opportunity to build a relationship by scheduling an introductory conversation before you make any request for money.
4. Set penalties for late payment
The payment terms that you define with your customer should include details of what will happen if a payment is late. This can also be included on your invoice when it’s issued. You will need to set both the type of penalty and be clear about when it’s applied, i.e. ‘2% interest on outstanding balances per month’.
5. Reward good behaviour
If you’re considering setting up penalties for late payment, you could also look at incentives for customers who pay early or on time. These can be included in your payment terms. Incentives provide a great reason to pick up the phone and call your customers.
It’s much better for your relationship if you call customers and encourage them to qualify for a reward, rather than phone and warn them that they are about to incur a penalty.
6. Make electronic payments possible
As well as tailoring your invoicing process to your customer’s needs, you can also conduct a little market research and explore which method of payment they would prefer. Electronic payments are much faster than more traditional forms of payment, so are a great idea if you want to get payment into your bank even faster.
Instigating an electronic payment process requires that you have a clear system in place to ensure funds are correctly attributed to invoices. It’s important to make sure you don’t end up making a phone call to chase up a payment that has already been received.
7. Send your invoices out on time
It’s fairly hypocritical to expect your customers to pay on time if you aren’t getting your invoices issued on time too. There are plenty of systems available to help you automate your invoicing, and even a template will help you to speed up the process.
If you have a customer that pays their invoices on a set calendar date, i.e. on the 15th of the month following invoicing, consider being strategic with the timing of your invoices to optimise payment times.
8. Be the best communicator
As with so many things in business, good communication is crucial to getting your invoicing working well. That means being smart with communication around your upfront agreements and then proactively following up your invoices once you’ve issued them.
Make managing your communication cycle easier by scheduling follow up calls into your diary. Offer your full support to the invoice-payer in relation to getting the information that they need. Structure your incentive payments to be easy to communicate: you can even build a loyalty programme to support early payment.
If you want to make sure your invoices are paid on time, the first step is to make sure that you have done everything possible to make it easy for your customers to meet your deadlines. Make sure you have provided the information and support that your customers need to make payment. Don’t be afraid to pick up the phone and remind them that a deadline is around the corner. And remember to lead by example and make sure you are as efficient as possible at issuing invoices from your business.
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