A guide to best practices businesses should follow when billing by invoice.
There are several invoicing best practices that businesses should follow:
Invoice promptly (preferably immediately).
Research online accounting apps.
Offer early settlement discounts.
Tighten your payment terms.
Know who you're dealing with.
Don't be embarrassed to chase late payment.
1) Invoice promptly, preferably immediately
Some small companies still save up their invoices and send them out weekly or once a month. This creates a drag on cash flow. Invest in invoicing software to issue demands as soon as work is finished or goods have been shipped.
2) Research online accounting apps
These can make it easy to track hours worked on a project, as well as any expenses incurred, and will allow you to bill clients accurately, quickly, and on the move using a mobile phone or tablet.
Some apps will even issue reminders for tardy payers.
Having a reliable, detailed record is also useful if the final bill is disputed.
3) Offer early settlement discounts
This could be a 2/10 Net 30 arrangement, whereby customers get a 2% discount on an invoice paid in 10 days, with the full amount due within 30 days if this early deadline isn’t met.
Some businesses go further and offer a 5% or even 10% discount for a 10-day settlement period.
4) Tighten your payment terms
While many businesses still operate a 30-day payment cycle, it’s not obligatory to do so.
Some small-to-medium businesses (SMBs) now ask for bills to be settled within seven working days.
And keep an eye out for customers who continually don't meet your payment terms. Accounts receivable is an important part of your business, so nip any bad behaviour in the bud.
5) Know who you’re dealing with
Undertake a credit risk assessment and research a new client before agreeing to provide them with expensive goods or services.
Is it a real company? What type of legal entity is it? Ask industry peers about the individual or organization’s reputation before doing business with them.
6) Don’t be embarrassed to chase late payment
Enforce your payment terms, but always be polite and persistent to try to achieve an informal settlement.
There may legal measures at your disposal. Your state may allow you to enforce late payment fees, although it may be required that your customer agreed to these in the contract you established with them.
It's worth looking into what your state allows, however enforcing late payment fees isn't something you should leap to immediately when a single payment is late. This can sour relations with your customer permanently, resulting in you losing all future business with them.
The legal route should be a last resort. Try persuasion first.