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This post by Janet Berry-Johnson first appeared on the FreshBooks Blog on August 30th, 2016
Running a business is a balancing act. You're focused on providing top-notch services, keeping clients happy, paying the bills, preparing for tax time and juggling a million other demands to keep your business moving. As if that wasn't enough, you also need to keep up with invoicing to make sure you get paid. We agree-billing is a time-consuming chore but it's one of the most crucial functions of any business. If you neglect to do it right, it will affect your cash flow.
Invoicing isn't just a matter of catching typos and ensuring it's sent to the right client. A mere error on your invoice can result in delayed payments, miscommunication and loss of client satisfaction. Communicating the terms and promptly sending invoices are some obvious ways to ensure your billing is accurate and complete. Here are a few other invoicing mistakes you perhaps haven't considered.
You Didn't Upload a Logo (Or Don't Have One)
If you don't include your logo on each and every invoice you send, you're missing out on a simple branding opportunity. We live in a visual world. Even down to the minute details-like invoicing-there's no exception. Many people spend hours of their days on website design and business cards, but spend very little time thinking about how their invoices represent their brand.
Consider this: your invoice is potentially your last contact with your client, so it should reflect the same branding and attention-to-detail as your website and printed materials. Take the time to create a beautiful, clear invoice-your clients will appreciate it!
You Forgot to Add a Due Date
Many invoicing templates include the generic wording "Payment due in 30 days" or "net 30." Those phrases seem simple enough: if the invoice is issued on July 30th, payment is due on August 30th-right? Actually, to ensure you're actually getting paid on time, consider communicating the due date a little clearer.
Consider the situation from an accounts-payable perspective. First, your client has to locate a date on the invoice. They probably receive many invoices each month. After they've located the due date, they need to establish the payment terms, which may or may not be located near the invoice date. Maybe the payment terms aren't included on the invoice at all. Then, the client has to calculate the due date based on these two pieces of information.
When you consider how many invoices an accounts payable department processes every day, it's easy to see how a wrong due date may be entered. To make matters worse, many accounts payable systems default to the current date as the invoice date. The current date will always be later than the actual invoice date, so unless your client takes the time to enter the information correctly, your invoice will be paid late.
The solution? Make it as easy as possible for your client by providing a clear due date on each invoice. Consider writing the due date clearly at the top, and including additional payment terms below.
Adding this information in a prominent location will make it less likely that your client will enter inaccurate information in their accounts payable software.
You Sent Your Client a "Surprise" Invoice
Some people love a surprise, while others not-so-much. But no one enjoys a surprise invoice-rather, a charge they didn't expect.
If your client is asking for additional work or it's taking longer than originally planned, notify them immediately. Never send a surprise invoice without informing your client ahead of time. Perhaps your client expected to pay for your time, but didn't know you'd be billing for expenses. Or, maybe you initially thought the project would take five hours, but it took 10 instead. Whatever the issue may be, don't keep your client in the dark. Contact your client, outline the changes and have a conversation. Chances are they'll appreciate you were forthcoming and explained the billing charges to your invoice. Remember: transparency is key.
You Failed to Follow Up
Ask most entrepreneurs what their least favorite task of their business is and most will say "collections." Following up on accounts receivable is an odious chore, yet one that is absolutely crucial to the health of your business.
No matter how accurate and detailed your invoices are, you will occasionally encounter a client who doesn't pay on time. Once a payment is past due, you have to choose between getting paid or potentially irritating the client and damaging your relationship.
That's why it's important to have a procedure in place for following up on late payments and to adhere to that procedure consistently.
Some business owners prefer to call the client with a friendly reminder, others wait a week or two past the deadline. Either way, your initial contact should be a friendly reminder. In most cases, this reminder is all it takes to have your invoice paid promptly. Perhaps your invoice was lost in the mail or was redirected to your client's spam filter. The customer reads your email or takes your phone call, is apologetic and sends the payment that day.
If you have customers who are chronic late payers, perhaps they need a little financial motivation to pay on time. In that case, you can set up Late Payment Fees to charge after it is past due. You can even enable or disable late fees for specific clients if you'd rather not apply the policy to everyone.
If you do choose to initiate late fees, clearly communicate it immediately. Remember, as we explained above, surprises are never a good thing when it comes to invoicing! Ultimately, billing is about getting paid and nothing is more important to optimizing your company's cash flow than your invoicing process. Good invoicing practices keep revenue flowing into your business. No matter how many you issue, if those invoices are not getting paid, you won't have the cash you need to pay your employees or purchase the products and services your business needs to keep going.
About the Author
Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction, and binge-watching Real Housewives.