It may seem daunting and worrying to consider how you might go about changing your current invoice cycles and procedures. The fear of losing customers in our current environment could easily put businesses off wanting to suggest changes to existing customers.
As small business owners, we are all in a self perpetuating cycle of cash flow issues. If you offer long or extended payment terms to your customers, you are asking for trouble.
In many industries, chasing payments is one of the most time-consuming activities of the work.
If you want to trim down the time it takes to get paid, it starts with your invoicing process.
In a perfect world…
your customers would pay your invoice on or before the due date you request. However, in practice, it doesn’t always work out that way.
Having a systemised and electronic invoicing process, with easy payment options, will actually make a massive difference with your company’s cash flow.
When invoices are sent inconsistently, or late, have errors, look unprofessional, or not well defined in the product or service they are paying for, the client can become genuinely confused about the costs, and may take advantage by delaying payment, or not paying at all.
If you are having cashflow problems, then consider reducing your payment terms.
Have you considered changing from 90 day terms to 60 or even 30 days? Is a seven day payment term reasonable for your business?
Can you charge in advance before delivery, or charge a deposit or part payment? Have you explored a range of payment options to suit your business cash flow needs?
If your clients need your products and service and you are their preferred supplier, you may be surprised what payment terms they will agree to.
Some businesses we work with offer a small discount as an incentive to pay on time or early.
How to introduce new invoicing terms to your business
The process of creating great invoicing standards commences before you even commit to a client. Setting your expectations at the beginning of a new relationship is the perfect time to introduce your terms.
Then over time you can roll out your new payment terms to existing customers.
1. Start by executing a solid contract and expected invoicing procedures
Every industry has some form of pre-existing expectations on contract and payment terms. However it doesn’t have to be that way for your business.
Setting the foundation with any client should be detailed in a binding contract and should outline the relationship and expectations between each party.
Make sure you include your invoicing procedures:
- State when invoices will be sent for partial or full payment.
- Detail the expected terms of the payment period, eg pay within 7, 30 or 60 days.
- Outline your late payment fees or consequences of missed payment deadlines.
- Build in an agreed annual CPI increase every new financial year to keep up with ongoing increased costs of business.
Document the scenarios that may trigger a new discussion for scope creep or pricing review, such as additional revisions to the project that are above and beyond the original agreement.
If you assume that payments will come within 30 days and your client is allowed to believe they can pay whenever they like with no late penalty, you are setting yourself up for later disagreements and conflict.
Standardising your pricing and invoice template also saves your company time by not having to remember who is the exception to the rule, especially if most clients are happy with your standard pricing.
2. Make it easy to pay you
Let’s face it – the easier you make it for your client to pay, the sooner the payment lands in your bank account.
Depending on your client, you may want a variety of easy online payment systems so you can easily fit into their business’s accounting package.
Setting up payment options takes time, but once you have them, they start saving you time.
There are many ways to automate payments now − straight into your bank account and reconciled with your accounting package.
Talk to your accountant on how you might be able to introduce this technology into your business.
If you have a service that is provided on a regular basis for the same amount each time, there are many systems you can implement in your business to have these payments scheduled via direct debit each week/fortnight or month.
Let someone else take and chase the payment for you.
3. Be consistent
Stick to the schedule set out in your agreement. Even if it means setting a regular time aside to create and send invoices on a given day in your calendar, it is well worth it.
4. Expect accuracy and detail in every invoice
Even if some clients don’t mind a stripped-down simple invoice, provide as much detail on every invoice as you can.
However, this doesn’t mean adding many lines of unnecessary explanation either.
At a minimum you should include:
- all company contact details
- the invoicing contact person
- a detailed description of the work completed and why the amount is being invoiced (especially if it will be different from quoted), and
- available methods and modes of payment.
If you have ever had issues with accuracy, schedule a double-check process for invoicing as delays often happen because of small typos and errors.
5. Regular reconciliation
As invoices are paid, mark them as such and keep track over time.
Every invoice affects the remaining budget for each project. You don’t want to end up invoicing larger amounts at a later date without regular communication with your contacts. Be mindful of their cash flow as well.
If you regularly review your invoice reports you will start to see patterns. You may notice when a regular client has stopped buying from you. This can be a trigger for you to reach out and potentially gain more work right at the time they need you.
Dealing with delayed payments
When clients don’t pay your invoice on time, the best first assumption is that something has gone wrong. Don’t assume they are not wanting to pay, don’t have the funds or there’s been an error on your side. Focus on transparency to avoid conflict.
Have a discussion with your client and remind them of the procedures in your contract. Be willing to listen if they are having cash flow issues or have another explanation.
If they don’t pay a partial payment, it is reasonable to request a halt in the project until the payment is issued so you don’t end up spending more time on a project where you will not be paid.
However being flexible for a client with a positive track record of paying on time can be valuable. So focus on solutions that balance your need for cash flow and the value of being flexible with a good client.
Save time and money with integrated apps
It is far easier to conduct consistent, accurate invoicing when you have a platform to organise your business expenses and income.
There are many integrations now available across a variety of accounting platforms that make it easy to share data between systems and keep client project details, milestones and payment terms up to date.
Are you ready to automate elements of your invoicing system and improve your understanding of your cashflow requirements?
Then call the office to discuss funding options to support the growth of your business.