There are many ingredients to business success and various things you can do to set yourself up for growth, but all your efforts could be for nothing if you're falling short on the basics - like making sure you get paid.
Effective invoicing helps you to maintain a healthy cash flow, which is essential for the day-to-day running of the company.
It's hugely important, therefore, for the finance department to be aware of common invoicing problems and how to avoid them.
1. Waiting too long
Invoicing should happen immediately after the product or service has been delivered or the project you're charging for has been completed.
Preparing the invoice in advance and ensuring all the right details and information are in place will help ensure you can send it as promptly as possible, reducing the risk of problems or procrastination that will delay payment.
It really comes down to a very simple principle: the sooner you send the invoice, the sooner you can get paid.
2. Sending to the wrong recipient
One of the most important checks to make when preparing to send an invoice is that you're delivering it to the right customer contact or department.
If you send it to the wrong place, the invoice could end up being overlooked or simply ignored, and it might be some time before you're made aware of the mistake.
Don't assume that your main contact is the person you should be sending your invoice to. Verifying the right recipient beforehand will minimize the risk of delays and late payment.
3. Getting basic details wrong
Every invoice you send out should include details like:
- Name and address of your business
- Customer contact name
- Name and address of the company you're invoicing
- Invoice number or reference
- Details of products or services delivered
- Invoice date
- Total amount payable
- Due date
- Payment terms
- Details on how to pay
It's crucial that these details are included in full and there are no errors in the information. Basic mistakes - like getting a single digit in the due date wrong - will complicate the process and, at worst, result in the invoice being declared invalid, meaning you have to start the whole procedure over again.
4. Failing to itemize
Confirmation of the products or services provided is a key part of every invoice, and it's important that this is presented as an itemized list.
You should provide a breakdown of each chargeable aspect of your service, accompanied by the amount payable for each element, whether it's shown as an hourly rate or a flat fee.
Itemization makes the whole invoicing process more transparent by showing your customers exactly what they're paying for.
5. Not using incentives or late fees
Late payment is a major problem for many companies, so to maintain a positive cash flow and increase your chances of success, you should be giving your clients every reason to pay their invoices on time.
One way to do this is by offering incentives to customers that pay early. Exclusive discounts on future services can encourage clients to settle their invoices as promptly as possible, as well as securing repeat business.
The flip side of this is enforcing disincentives for late payment, the most obvious example being late fees. Use the payment terms section of your invoice to clearly state that late payments will incur additional interest, meaning customers who miss their deadline will end up paying more.
Claiming interest and debt recovery costs if another business is late in paying you for goods or a service is a legal right in the UK and other countries.
6. Not following up
It's a mistake to assume that, once an invoice is populated with all the necessary details and sent to the customer, your job is done.
Firstly, you need to confirm the invoice has been received and check if the recipient has any questions about it.
If receipt has been confirmed, the payment deadline is approaching and you still haven't been paid, it's wise to be proactive and follow up with the customer. It's often the case that a friendly reminder is enough to get an invoice paid straightaway.
7. Failing to move with the times
In these modern times, finance teams have access to many technologies that can boost efficiency in the invoicing process and help the business succeed by optimizing your cash flow.
A cloud-based invoicing platform, for instance, could make it much easier to store up-to-date customer data and payment records. This technology can also reduce the risk of information being lost while enabling staff to access the data and resources they need from any location.
Innovations like automated analytics can also help you pinpoint common invoicing problems and identify the biggest obstacles to on-time payment.
Using technology to boost your understanding in this way will contribute to the efficiency of the finance department and the ultimate success of the business.