Invoicing should be relatively simple: you outline the services or goods provided, the price, and how the client should pay you, and then you get paid. Unfortunately, you can sometimes be left waiting for payments from businesses that—whether intentionally or not—find ways to delay releasing funds. With this in mind, B2B companies need to develop invoicing practices that remove potential roadblocks to getting paid and set the payment terms as clearly as possible.
Below are five invoicing tips to help you get paid quickly and prevent late payments or clients taking advantage of you.
Include everything the client could need
A typical invoice needs to include:
- Date it is sent.
- Invoice reference number.
- Your business details, including business name, number (if registered), address, and contact information.
- Client’s name and address.
- A breakdown of the goods and services being charged for.
- The amount to be paid for these goods and services.
- Taxes and other fees, if applicable.
- How you expect to be paid, for example, bank details for a bank transfer.
- Payment terms (See tip 2 for more details).
- Any additional notes or information that may be beneficial to the client.
Double-check the accuracy of all the information present on the invoice before sending it to the client. Also, remember that including too much information is better than not including enough. If the client spots a mistake or has to follow up for additional information, it will slow down the process of getting paid.
For example, you may be working with a client from abroad and need to consider additional details such as the currency you expect to be paid in or the international account details (e.g., IBAN, Swift code, etc.).
Another factor to consider when creating your invoice is that many businesses are automating their accounts payable processes using bill pay software. This software may scan the invoice and automatically extract the relevant information. Therefore, you want to make your invoices as clear as possible with each piece of information labeled.
Set clear payment terms
As we mentioned above, your invoice should include the payment terms. Failing to set payment terms increases the likelihood of late payments, potentially creating a cash flow headache for your business.
While you’re entitled to set the payment terms, it should not come as a surprise to the client upon receiving the invoice. Communicate your payment terms clearly from the outset of the business relationship and get a record of their agreement, ideally through a contract between you and the client.
Your payment terms are defined by:
- The due date you are expected to be paid by.
- The payment method you expect to be paid by and the associated details the client needs to fulfill the payment.
- The currency you expect to be paid in.
- Other payment conditions include a discount for early payment or fees/interest for late payment.
Standard payment due dates include Net 7, 10, 30, 60, and 90, corresponding to the number of days after the date that payment is expected, EOM – end of month, or 21 MFI – 21st of the month following the invoice date.
Incentivizing early payments with discounts is a crucial tool to ensure the prompt arrival of funds. Early payments are commonly expressed in terms of a percentage discount based on the payment within a number of days.
For instance, an invoice might state “5/10 net 30” payment terms. This means the payment must be made within 30 days of the invoice date, but the payee can receive a 5% discount if the payment is made within 10 days. While this reduces your profit margins, the additional cash flow flexibility of early payments may be worth a small reduction in revenue.
It can also be worth adding interest or fees to your terms to penalize late payments. You can assign a fixed fee (financially beneficial if you deal with lots of smaller value invoices) or charge interest (better if you deal with fewer invoices that are larger in value), expressed as an annual percentage, for any late payments.
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Document all of the goods and services provided
A common reason for a delayed payment is a client disputing the goods and services provided and the price being charged. To prevent this from happening, you should document everything.
This includes the client agreeing to the price before receiving the goods and a record of the goods being delivered. Additionally, you should make efforts to demonstrate the quality of the goods. This could be a list of suppliers for the raw materials that go into the product or a demonstration of past successes (e.g., testimonials from satisfied customers).
Conversely, if you’re charging for services by the hour, make note of the hours worked and the progress of the project at different stages throughout the project.
Offer multiple payment options
If possible, try to facilitate multiple payment options to give clients greater flexibility.
For example, you may not want to pay the fees associated with accepting credit card payments. But this is often the most convenient method for clients. In this instance, you can either add the cost of the credit card fee to the price of all your products, or you can explain to clients that there will be an additional fee if they choose to use a credit card.
Proactively chase down late payments
Don’t feel awkward about chasing down late payees. You set out your payment terms at the start of the business relationship, and they are the ones breaking the agreement. Remind clients when they’re getting close to the due date, and don’t be afraid to chase down clients who have already missed their payment date.
The invoice might have slipped through the cracks on their end, and they are not trying to evade paying. A timely reminder from you might be exactly what they need to notice that something has gone wrong and fulfill the payment on time.
Send emails automatically reminding late payees and include what your next step will be regarding fees or interest being charged. If this does not trigger them into action, consider contacting them directly over the phone.
Finally, regularly review existing customers and cut loose any clients that are consistently late paying your invoices. The additional time spent chasing down clients who have proven themselves to be unreliable is often not worth the business they generate.
Successfully communicating expectations through your invoices
Prompt payments are critical for the financial success of any B2B company offering products and services on credit. With accurate, detailed invoices and clear payment terms, you can ensure your clients have no excuse to miss their due dates.
Remember that invoices are a communication tool, setting the expectations of doing business with you. Spend some time considering how you want to communicate with your client and how you want to do business moving forward.
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