Most small business owners wear multiple hats, which can make business tasks such as invoicing seem overwhelming. But invoicing customers is a central part of business sustainability. After all, it’s how businesses get paid for their work.
Unfortunately, many business owners struggle with developing an effective invoicing system that ensures easy payment from customers. For this reason, we’re going to provide small business owners with a comprehensive guide for invoicing their customers.
Challenges of Invoicing for Small Businesses
There are many challenges that small businesses face when it comes to meeting their invoicing needs. Here are a few common invoicing issues.
Getting Paid on Time by Clients
Every business owner would love to get paid soon after they send an invoice. Unfortunately, this isn’t always the case. Many small business owners struggle with getting customers to pay their invoices on time, which decreases cash flow.
It’s not uncommon for customers to delay paying their invoices. This might be because they aren’t financially prepared to pay the invoice, they don’t see the urgency in paying on time, or there is an issue in the process such as a lost invoice. Whatever the reason might be, invoices that are paid late can hurt the business.
Waiting to Send the Invoice
Another challenge that small business owners face is predicting the right time to send an invoice. Certainly, every owner knows the importance of getting paid for their product or service. However, many owners aren’t as assertive when it’s time for payment.
Some business owners will wait to send out an invoice as a way to not feel too pushy. In other instances, owners are simply so busy that they forget to send their invoices out promptly. But when businesses wait to send out their invoices, it makes it difficult to get paid on time. This, once again, can hurt business overall.
Complicated Payment Process
Having all the bells and whistles on your invoice may seem like a good idea initially but this can complicate the payment process. It’s important to show customers that you are professional by having an up-to-date invoicing system but if the payment process is too complicated, it is more likely that your customers will be confused, often resulting in late payments and even no payments at all.
Forgetting Basic Invoice Components
Missing basic information such as the customer’s correct email or an invoicing date can complicate the entire payment process. For instance, business owners should always include the invoice date. This doesn’t just create a track record for when the invoice was sent for completed work, it’s also important if you have a deadline of when a customer can pay before a late fee is added. At the same time, if you don’t include an accurate email address, your customer won’t receive the invoice at all, which will delay the time of payment.
When Should Small Businesses Send Invoices?
Every business has its own strategy when it comes to their invoicing schedule. With that said, it’s important to be consistent with whatever schedule you choose to set the expectations for customers. For instance, don’t build a habit of invoicing your customers with 48 hours of job completion and then later deciding that it’s best to invoice upfront. This can be confusing for the customer. Even more, this can negatively impact the customer experience as they have to quickly adapt to a new invoicing schedule.
Here are a few invoicing options to consider.
Sending an invoice upfront could be a good option for your business. Invoicing upfront means you’ll get paid before providing a product or service. A great example of upfront invoicing is in the e-commerce business industry. A business will charge the customer before giving the product.
Service-based businesses tend to shy away from upfront invoicing as they feel they need to prove their capabilities before charging. But that doesn’t mean that service-based business doesn’t have a reason to charge upfront.
Another invoicing option is to send the invoice in increments. Most businesses will use this type of invoicing schedule if the job will take weeks or months to complete. Sending incremental invoices not only allows the customer to be aware of how much the project will cost as you move along but it ensures you will get paid for your work.
Invoicing Upon Job Completion
Many businesses will quote a price for a project, wait for the customer agreement, and then send the invoice upon completion. Business owners that are just starting out will often use this invoicing method. But with this method, you run the risk of finishing a project without payment.
While invoicing once the job is done may seem courteous to the customer, it could be more trouble than it’s worth. If you feel that invoicing upon completion is the best schedule for you, be sure to create contracts for agreements as this will deter customers from backing out of payments.
What to Include in Your Invoice
Including the right information is important for many reasons. Invoices that are filled out correctly ensures that your customers receive their appropriate invoices, minimizes the risk of a miscommunication between the products or services rendered and price, and ensures you have a steady flow of cash coming in. Here are 6 basic things you should include on all of your invoices.
- Invoice and Invoice Number: It’s always important to indicate to your customers that what you’re sending is an invoice along with a unique identification number for record purposes.
- Company Name and Address of Customer: Another thing that’s important to include on your invoices is your company name and the address of the customer receiving the invoice. This is important information to have if you ever face any issue with a dispute.
- The Date of Supply: The date of supply refers to the date the product or service was provided.
- The Date of Invoice: This date is different from the supply date. This is the date when the invoice was generated for the customer.
- Amount of Individual Products or Services: If you are sending an invoice that includes multiple products or services, be sure to include how much each one is with the grand total for better clarification.
- Payment Terms: Your invoice should have a terms and conditions section agreed by your customer that includes payment terms. For instance, you might want to communicate to customers that the invoice should be paid within 30 days or a 10% fee will be added to the total invoice.
Top Software Tools for Small Businesses
Invoicing software is excellent for small business owners that want to simplify processes, invoice efficiently, and organize all of their invoices in one place. Here are 3 top invoicing software small businesses should consider for their business.
This software provides invoicing services to over 130,000 businesses. With Invoice Ninja, businesses can seamlessly provide invoices to customers, and even set up auto-billing. Even more, business owners can create custom invoices to fit their brand, send custom late payment and auto-bills to customers, and attach invoice PDFs to customer emails.
Invoice Ninja claims to have every tool a business needs for invoicing and asserts that they can help businesses speed up their workflow, increase productivity, and ensure payment accuracy.
Another great invoicing software for businesses is FreshBooks. They are an all-in-one small business invoicing and accounting solution that is focused on providing a seamless accounting experience for businesses.
They help business owners automate tasks by sending invoice reminders. Along with this, FreshBooks provides insightful reports to help business owners make smarter decisions.
Square Invoices prioritizes helping businesses save time and get paid faster. With Square Invoices, businesses can send digital estimates and invoices and track which invoices are paid and unpaid in real-time. In addition, businesses can send quick reminders and accept payments even on-the-go.
Another benefit of this invoicing software is that customers can pay in one click, making it easier for businesses to receive payment. Customers can pay online through their computer, in person, or through their phone with the use of a credit card, Apple Pay, or Google Play.
Tips to Get Paid on Time
Getting paid on time by customers can be a hassle, but it doesn’t have to be. Here are 4 tips businesses can leverage to get paid on time by their customers.
Send Invoices as Soon as Possible
It’s not uncommon for business owners to get busy and forget to send out an invoice. The problem with this is that the longer the invoice is not in front of the customer, the longer it will take for you to receive payment, which doesn’t help with cash flow. Sending invoices as soon as possible will help you get paid at an ideal time and avoid any financial issues.
Add Overdue Fees
Another tip to get paid on time is by adding overdue fees in the terms and conditions section of your invoices. Customers will feel more motivated to pay an invoice within the allotted timeframe if they know there are repercussions upon failure to pay.
Ensure Information is Accurate and Easy to Understand
Sometimes an invoice is not paid in a timely manner because there is confusion somewhere in the process. For instance, if you don’t have a customer’s email, you might be waiting for them to pay an invoice when they haven’t even received it yet.
At the same time, the contents in the invoice may not be easy to understand and requires further clarification before a payment is made. Ensuring all information is accurate and easy to understand will eliminate these kinds of problems, allowing you to get paid as quickly as possible.
Keep Payment Terms Short
It may seem like a good idea to give your customers a buffer for payment. However, it’s not a good idea to make your payment terms too lengthy if you want to get paid quickly.
For instance, if you offer a payment term of 60 days, there’s a good chance that customers will rely on this buffer and wait the full 60 days to pay. This can make getting payments feel like a drag. Instead, keep your payment terms short. This way, if customers wait until the end of the payment term, it can still be within an acceptable time frame.
How to Keep Track of Invoices
For business owners, keeping track of customer invoices is crucial. Here are 4 easy options that small businesses should consider for better invoice tracking.
- Keep files in chronological order
- Use a spreadsheet to organize
- Use invoice scanners
- Leverage invoice software
How to Automate Invoice Payment Reminders
Automating invoice payment reminders will ultimately depend on which software you use. In general, you can automate your invoice reminders by going into the settings of your invoicing software and then going to your invoice options. From there, you should be able to turn on payment reminders.
Your software system should be fully-customizable, allowing you to set the time you would like to send payment reminders to your customers and how often you would like them sent.
Invoicing is the lifeline to cash flow for small businesses. For this reason, it’s important for small business owners to have a streamlined invoicing process in place that reduces the hassle, increase productivity, and ensure on-time payment.