Accelerate Your Cash Flow: Avoid These Common Invoicing Mistakes
Invoicing is one of the most crucial aspects of any business.
It also happens to be one of the least exciting aspects of running a business.
As a business owner, you'd likely rather be doing tasks that add value to your business, like engaging with customers, instead of running through the paperwork.
However, invoicing is critical to your business's success. It is what pays your bills and keeps your cash flows in check. Therefore, care and diligence should be exercised when handling invoices to ensure they're free of errors.
Some invoicing errors can delay your payments. Others can destroy customer relationships and cause reputational damages to your company.
The good news; you can accelerate payment and foster good customer relationships by following invoicing best practices.
This post covers the nine invoicing mistakes to avoid if you wish to accelerate cash flow and ensure smooth payment processes. Most of these invoicing pitfalls revolve around invoice structure, appearance, timing, and follow-ups.
1. Incorrect or Missing Invoice Details
Sending a detailed invoice is paramount.
Your invoice should leave no room for guesswork. A badly-designed invoice can cause confusion and delays in payment.
That said, always be sure to include all the information that the customer and your country's governing laws require. Generally, a well-structured invoice should contain the following information.
- Your data – The exact name of your company, address, registration number, VAT number, and company location
- The customer's data – Name, address, and VAT number (if applicable)
- Date – The date when the invoice was sent and the date when the products or services were delivered
- Product Description – A brief description of the products/services delivered
- Price – The price per unit and the number of units (could also be hours)
- Total amount without VAT
- The correct VAT percentage as provided by your legislator. In case of exemptions, state a reason why your business is exempted from VAT
- The total amount payable, including VAT
- Due date – The latest date when the invoice must be paid
- Payment terms – The payment terms included in the contract, including partial payments and any discounts offered
To avoid invoicing errors, always proofread your invoices before sending them. This can prevent constant back and forth emails that delay payment.
2. Not Following Up on Unpaid Invoices
Even if you send accurate invoices on time, there will be times when the customer misses the due date due to various reasons.
For instance, they might misplace the invoice or run into unexpected cash flow problems. They may even forget to pay or fail to prioritize you, especially if you don't charge a late payment fee. And some won't pay until you badger them.
For these reasons, following up on unpaid invoices is a prudent move. Like sending invoices in the first place, it's your responsibility to follow up on unpaid invoices. Simply contact the customer to find out what's going on and address the situation.
Sending a payment reminder before the due date can, in most cases, save you the trouble of following up on unpaid invoices.
If you don't like the idea of following up on clients or sending follow-up emails, automate your invoice processing. Many accounting and invoicing software, including QuickBooks, let you automatically send customized late payment reminders.
3. Providing Unclear Payment Terms
Avoid using ambiguous language when writing out an invoice.
Likewise, never use jargon in your invoices.
For instance, ' Net 15 payment terms' might be unclear to some. It means the payment is due within 15 days after an invoice is issued.
However, if the point of contact within the organization is not familiar with those payment terms, they might not understand its meaning and context. The term can also be misunderstood somewhere along the payment chain.
For instance, does the "Net 15" include weekends, or does it only apply to working days. Rather than using jargon or ambiguous terms like "Net 15," why not bring everyone on board by using more straightforward terms, like a specific due date.
4. Sending the Invoice to the Wrong Person
Just because you signed a contract with an individual doesn't mean they're going to be responsible for paying your invoices.
In most cases, the finance department handles the invoicing. If you signed a deal with someone from a different department, chances are they won't be responsible for paying you. Some companies even outsource invoice processing to a third party.
That said, prior to sending an invoice, make sure you've addressed it to the right person or department. Nothing can be more frustrating than sending a follow-up email only to be notified that they never received your invoice. You can save yourself the trouble by asking who your billing contact is at the beginning of the relationship.
5. Including Surprise Fees
No one likes surprise fees, and your clients are no different.
If, for some reason, you need to do extra work not covered on the initial agreement, speak to your client first before doing the work and before invoicing them.
Shocking your clients with additional charges not included in the contract can create a bad experience for them that could destroy the relationship.
An unexpected charge added to the total stinks of a scam. This creates a trust issue that ends with the client switching to the competition and never to return. It can also harm your company's reputation and present you as unprofessional.
The solution is simple; communicate all charges with the client upfront. You'll need to detail not only the project costs but also any additional fees or taxes that might add up to the grand total. Transparency builds trust and helps solve many problems down the line.
6. Making it Difficult for Your Customers to Pay
You could do everything right, but if you don't simplify the payment process, you'll give your clients an excuse for not paying.
But how do you make the payment process easier for your clients?
Start by offering multiple payment options.
Provide a variety of options so that there's no excuse for them not to pay. Today, invoice processing has become so easy that it's possible to complete the payment with just a few clicks. You'll want to offer a variety of payment methods, such as credit card payments, direct deposits, and electronic payment options.
This ensures you cater to all customer types, simplifying the payment process.
7. Not Signing a Contract
In a perfect world, a handshake is all an entrepreneur would need to sign a deal.
But in the real world, things change, including the pricing of goods, consumer's taste, the nature of work to be performed, etc. As such, it's in your best interest to sign a contract to protect you from getting played in the event things don't turn out as expected.
Having both parties sign the contract ensures both parties are on the same page and are protected when it comes to payment. You should also be clear about the invoice payment terms you're mentioning in the contract.
You don't want to bear the costs of a deal gone wrong and have no paper trail to back your case. The beauty of a contract is that it makes every deal enforceable should things go south.
8. Not Offering Clarity and Itemization
When it comes to payment, everybody wants to know what exactly they're paying for.
Always ensure each product delivered or service rendered is listed alongside their prices. If you're charging an hourly rate, your invoice needs to state the number of hours worked and the related cost per hour.
Your customers will likely pay you quickly if they can see and understand exactly what they're paying for. A vague invoice with inaccurate figures will cause delays that your business can't handle.
9. Not Using Company Branding
It's easy to forget that an invoice still represents your company.
Make it represent your company in all its glory. Branding is vital for practically every customer-facing element of your business, including your invoices.
From a corporate standpoint, branding your invoices means your customers know who you are right away and hopefully understand what the invoice relates to. But if the invoice lacks branding, it's easy to be tossed with other papers into the trash.
What's more, branding your invoices adds an air of professionalism that makes your clients respect you and your services/products.
Most accounting and invoicing software will allow you to brand your invoices. They offer you many customization options while ensuring all the relevant information is included. So, if you really want your invoices to stand out, ditch that Excel invoice and automate your invoice generation with invoicing software.
That's it! The mistakes to avoid when invoicing your clients.
By following the invoicing best practices and avoiding the mistakes highlighted above, you'll accelerate payment and foster good customer relationships.