How does invoicing work?

A brief explanation of invoicing and payment terms.


How does invoicing work?

Typically, you invoice your client and they pay you within a fixed time. The actual time taken to pay is something that you can negotiate with your clients, but there are some guidelines and also some legal considerations to bear in mind.

Ideally, the sooner you're paid, the better. Terms of 14 days are reasonable and some invoices specify 10 or even seven days. That might seem unrealistic, especially when dealing with larger clients for whom payment sign-off can take weeks, but it doesn't hurt to make the point that you expect to be paid promptly.

Late payment often leads to cash flow issues, which in turn can result in companies going out of business. In some states, you may have legal rights to enforce fast payment – talk to your accountant or solicitor about these.

You might consider offering a discount for early settlement or payment in advance. It may be worthwhile doing this because, although you'll have slightly less revenue, that may be offset by the improved cash flow. It's also a nice way to build goodwill with fast-paying clients.

You can shave at least some time off the payment period by delivering your invoices electronically rather than by post. Email is usually faster, as long as it goes to the right person. E-invoicing using accounting software can also boost payment speed, since the recipient can pay directly, straight away.

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