Invoicing is an important part of small business accounting, but the payment process will always be problematic if you don't set up your invoices properly. So what can you do to ensure invoicing is easy and your customers pay promptly and regularly?

 

Take the time to invoice properly

 

There's much more to invoicing than simply sending out requests for payment. The key is to get your invoicing process right from the start.

 

It’s likely as a small business owner, you’re short on time with many other aspects of your business to set up, maintain, and monitor. But making the effort to get the payment process right at the beginning will pay off in the end—literally. When your invoicing process is efficient and pain-free, it’s likely your cash flow will improve.

 

Clearly outline your payment terms in your service agreement

 

When you engage a new customer you might be excited to just get started on the project, but it’s important to set the expectations for project delivery and payment terms in advance.

 

Draft a service agreement that clearly outlines the scope of the project and how you will bill for your products or services. Specifically outline terms such as your billing rate, frequency of billing, how much time the customer has to pay, and what payment methods are available to your customer.

 

Develop the right mindset about getting paid

 

When you worked for someone else, you were used to getting a paycheck on a regular schedule, but as a small business owner, you now have to proactively manage payments, otherwise, you won’t get paid. And for some people, this can be a difficult adjustment to make. Consciously, you know you’re owed the money, but actually asking for it can feel daunting and stressful. The fact is, your client has benefited from your product or service, and this means they have a legal and moral duty to pay you according to the agreed terms.

 

So don't be timid – be polite but firm. Your clients aren’t doing you a favor by paying. They have agreed to pay you by engaging your business for products or services.

 

Keep accurate records of your work

 

You can't invoice if you don't have accurate records of the work you've done for your customers. Keep track of the time and materials expended on a client's project and make sure you invoice for everything you agreed upon in the service agreement.

 

Use time-tracking software and time sheets if you need to record the number of hours or days spent on a project. Cloud-based accounting tools, such as Quickbooks Online and Xero, have these built-in or have a variety of time-tracking apps that will sync seamlessly.

 

Best practice is to record time daily as well as frequently throughout the day, if you are able. If you record the finished work as you go, it will save you having to remember the details at a later date. It also means you’ll be less likely to forget to include something in your invoice.

 

Work out how regularly you want to invoice

 

Should you invoice regular clients on a monthly, bi-weekly, or weekly basis? It might depend on the type of work being done. For example, services contract work could be invoiced on a weekly basis, while a manufacturing project may be invoiced bi-weekly or monthly. This is something to negotiate with your client.

 

Whatever schedule you choose, be disciplined in sending your clients’ invoices on the agreed-upon schedule. It may be easy to get caught up in delivering the project, but it is important for both you and your client to have consistent and clear expectations around billings and payments. Not only will it help you manage cash flow, but it will help you avoid confusing and unnecessary conversations about billing and project status later down the road.

 

Work out what your accepted payment methods will be

 

While some payment methods mean extra fees for your business, you should balance the costs against the value of having quick and easy payment methods available to your clients. Ultimately, this may mean more cash in the door and fewer wasted resources tracking down uncollected payments.

 

As a general rule, when you make it easier for your customers to pay, it will encourage them to pay sooner, and that’s always a good outcome. For example, accounting software such as Quickbooks and Xero will add a ‘Pay now’ option to online invoices if you’ve signed up for its merchant or ACH services. This means that you can send customers invoices online with the option of getting paid with a click of a button.

 

Consider Implementing Automatic Payments

Even with the best efforts, some small business owners may still find themselves chasing payments. Services like Bill.com and Quickbooks Online allow you to automatically charge the customer on the date the invoice is due. This is a great option to minimize the hassle with collecting your payments and provides the business with reliable cash flow. Some customers also find this a convenient option because on the flip side, managing accounts payable can also be a difficult process for many small business owners. Automatic payments give your customers the confidence that your payments will be processed in a timely manner without much effort on their part.

 

Important! If you choose to implement automatic payments, you are required to get written pre-authorization from the customer. Tools like Bill.com and Quickbooks Online will have these forms available for you to pass along to your customer. It is also good practice to give your client a sufficient window to review the invoice before the payment is charged, so they have time to ask questions or get clarification on charges as needed. This can be accomplished by setting standard “Net 15” or “Net 30” payment terms, as well as defining a window—such as 5 days before invoice due date—for questions to be raised.

 

Keep track of late payers

 

Once invoices have been issued, keep track of who's paid and who hasn't. Politely and professionally follow up with the customers that have outstanding balances.

 

Small business accounting software such as Xero and Quickbooks Online can provide aging reports that will break down what you're owed by the age of the invoice, showing you at a glance who owes you money and how much. It may also let you send emails to the slowest payers, so you can remind them of your payment terms and the due date. Some accounting software will also show you when your customer opened the invoice online. Customers won’t be able to pretend they haven’t received your invoice when you can see they opened it weeks ago.

 

This might all seem like a lot to think about. But once your invoicing process is properly set up, it should run smoothly and without too much intervention.

 

A combination of the right attitude, processes, and accounting software will help you to invoice your clients properly and encourage them to pay you on time.