Posted on 19 February, 2019  |  4 mins

More than four in every five (82%) failed small businesses fold because of cash flow issues—either bad management of cash flow or a poor understanding of it. 1

It’s not surprising when SMEs uniquely struggle to get paid on time for the work they do. You can’t walk into a supermarket, get a trolley full of food and tell the cashier on your way out you’ll pay them within 90 days.

Nor can you delay paying many of your own bills.

It’s unfair, it’s a disadvantage and it’s a wider-spread issue than you might realise.

At last count, Zurich found that one in five SMEs (21%) are owed more than £25,000 and almost one in 10 (9%) are owed more than £100,000. 2

But that’s enough about the problem; what’s the solution?

When the odds are against you, you need to work smarter. You need invoicing best practice in place to make sure the basics of invoicing aren’t letting you down.

Do your current invoices and invoicing procedures stand up to best practice? To find out, see how many of these crucial basics you have in place.

1. Include the invoice essentials

Remember to include all the basics on the invoices you send out:

  • Date of issue
  • Invoice number
  • Your business name and address
  • Your client’s name and address
  • The due date
  • Your bank details
  • Your contact details
  • As well as the VAT number, client reference and purchase order details (if appropriate).

If you use bookkeeping software, these basics will be put on all your invoices automatically. But if you still make your invoices by more manual methods, you’ll want to make sure you don’t miss the foundations first.

Your business doesn’t need a late payment because your client didn’t know your bank details and couldn’t find your phone number.

2. Address the client by name

A nice addition to the ‘essentials’, as well as including their company name, also address your invoices to your contact in their accounts department, or the person who approved the purchase (or both).

The latter could speed up payment because they can quickly confirm it, and the former ensures the person with the power of payment sees the invoice in the first place. Including their names also adds that extra level of responsibility and accountability. They know they are responsible for making sure it goes through.

3. Break down the charges with a clear description

Disputing an invoice takes time—time your client spends trying to understand the invoice, which they could instead spend paying it.

Include a breakdown of charges in your invoice. That could be the price of each item, as well as packaging and delivery costs where appropriate. Alternatively, it could be a copy of your timesheet if you provide a service.

4. Include payment options

Tell your client how you’d prefer to be paid. You may have to include a number of options, so your customers aren’t put off by a method that isn’t ideal for them.

QuickBooks researched which payment methods are most preferred by small business clients, with the top five being:

  • Cash (58%)
  • Credit/debit cards (38%)
  • Checks (33%)
  • PayPal (19%)
  • Direct deposit (12%) 3

Meanwhile, offering up-and-coming payment methods—like Apple/Google Pay or payment apps—could get things moving by giving debtors a quicker, digital solution.

A full break-down of favoured payment types (and much more) can be found here on the QuickBooks website.

5. Include your terms

Certainly when you enter into new business with a client, you need to make sure they’re aware of your payment terms.

You may like to include them as a separate attachment. These T&Cs should outline what kind of invoice payment timeline you operate on—30 days from invoice, 60 or 90 days, for instance.

For major orders, you may have to be flexible and agree specific terms beforehand. Make sure you have a flexible invoicing document, alterable and ready to go so you can edit and send it as soon as possible.

Your terms should also include any late-payment fines you may wish to include as well as any discounts you offer for prompter payment. You’ll need to deliver these at the time of invoicing if you want to have a leg to stand on should disputes arise.

You could also outline your legal position for adding statutory interest on late payments, so they know you know your rights. We discussed that and more in our previous blog post: Four tips to get your invoices paid on time.

Four tips for invoices inline2

6. Send invoices ASAP

Simple but oh-so effective. As soon as your goods are supplied, send your invoice to the right person right away.

It gives your client more time to sort out their own finances before they pay, and therefore plays to your advantage when looking for prompter payment.

It also makes you less likely to forget to send one in the first place. You wouldn’t be the first business person who’s so happy in making the sale they temporarily forget about the ‘getting paid’ part,

7. Use read receipts and history features

One feature of many bookkeeping software options, and email tools in general, is the option to send you a read receipt when your client opens the invoice.

This isn’t necessarily about being able to say “I know you received the invoice it because I saw you open it” (although that’s a pretty cast-iron argument). It’s about knowing your invoice was delivered, which can take some uncertainty out of your current process and give you more peace of mind.

You can also track the history of individual invoices—so you’ll know when each has been sent, delivered, paid and deposited into your account. Different accounting apps will be slightly different, but many of the features are similar.

8. Follow up before the due date

Knowledge is power, and knowing when you can expect to be paid will help you plan for your future cash position.

You may, then, like to give your client a quick call shortly before the due date of your unpaid invoice just to chase up.

A friendly reminder can move things along, put you top of mind or simply refresh the memory when a client would otherwise forget to pay. At other times, you might learn that your client will miss the due date, at which point you can at least be more proactive in managing your own cash to mitigate any risk.

If calling isn’t your thing, an email could do the trick in its stead.

9. Keep track of late invoices

For all your adherence to invoicing best practice, sometimes there’s nothing you can do about it: your client doesn’t pay before the due date and becomes an outstanding debtor (and not in the good way).

QuickBook’s research finds that around one-third of small businesses say 10% of their invoices are paid late. Another third say their longest outstanding payment was between three months and two years! 3

A popular insight from the 9 Spokes data dashboard is the “money owning” widget—a quickfire list of your six biggest debtors by invoice amount, and the total amount of cash outstanding in all invoices.

It’s good way to see regularly which invoices you’ll want to dedicate the most time to.

With a broad view of debtors—you might even want to use this widget right next to your cash position widget—you now have the means and the motivation to give your outstanding debtors a call and chase those late invoices.

10. Say thank you

Never underestimate the impact of a “thank you” once your invoice is cleared and payment is made.

Thank your client for their timely payment, remind them that you appreciate their business, and let them know who to contact and how to do so should they have any questions.

It’s all about building a relationship, so if you have any issues with that client in the future, you have a wealth of goodwill to use to your advantage. And you never know, some accounts departments might pay their favourite suppliers first—who knows?

So, do your invoicing methods stack up?

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