6 Common B2B SMB Invoice Mistakes: Catastrophic Invoicing Errors Which Delay Accounts Receivables & Get You Paid Late
In our last post, you learnt — 1 in every 3 (32.1%) B2B SMB invoices in India paid late or left unpaid are the seller’s fault, rather than the buyer’s.
That’s a colossal sum of money stuck in overdue Accounts Receivables, which companies can easily fix to repair their strained cash flows.
So let’s fix it. Here are 6 common invoicing errors SMBs and startups should avoid to significantly reduce their Days Sales Outstanding.
This article will address the following:
• 6 common avoidable errors which delay payment process;
• How to avoid said errors, and other related smaller mistakes in each category;
• Technological tools to help automate the process and avoid errors.
6 Common Invoicing Errors To Be Avoided Like A Time-Share
1] Always, Always, Always Promptly Send an Invoice ASAP After Work
It doesn’t matter what negotiations you may have had with a client before starting on their work — unless you send them an actual invoice, don’t expect a payment.
Yes, they should probably already have some idea of what they owe you. But they aren’t going to pay a cent unless you send them a formal invoice detailing the products and services rendered for which they owe you moolah.
Don’t dally around with sending it in either. Many small businesses or entrepreneurial startups treat work done as money in the pocket. So, they are quite slow in actually sending out the invoice, since they figure they’ll get paid promptly once they do send it in.
They figure that concentrating on the next job right now is of higher priority, so they’ll send it in tomorrow. Or the day after that, and so on. Bill faster to get paid faster.
2] The Purchase Details Don’t Match
There are a few items on an invoice which fall under this list. Discrepancies with these details result in most non-payment situations among overdue Accounts Receivables. In fact, a staggering 81.6% of all seller-caused late or non-payment situations on invoices deal with either wrong or missing purchase details.
Make sure that the purchase order number you’ve sent on the invoice matches the same number they sent earlier, upon acceptance of your tender quote.
If you don’t have a specific purchase order number, ensure that the details and amount charged for the product or service are accurate and in keeping with your earlier negotiations.
And you can’t just bill them for “Products” or “Services” if there have been multiple transactions, and expect a quick payment. Include an itemized breakdown of everything for which your client is being charged.
Sometimes, extra costs are incurred during the course of work and they need to be billed — especially since you’ve already informed your client via email and received their approval for the added costs. But if you send a single-item bill for Rs.42000 ($636) when your client’s invoice or finance department is expecting a bill of Rs.37000 ($560) — expect a lot of time wasted on follow ups.
Instead, add the basic product or service of Rs.37000 and then add a descriptive secondary item for the extra cost worth Rs.5000 ($76).
Also, double check the name of your buyer’s company on the invoice before sending it to them. Neglecting to perform a simple check of whether you’ve correctly spelled out their name is quite grossly unprofessional on your part — not to mention insulting to your client.
Your client has little reason to send you the payment in time, since courts in India can hardly get you prompt justice on contractual matters. Don’t give them more reasons to drag you along for the late payment ride.
3] Invoice Sent To the Wrong Personnel
You know that time when that CEO client asked you to send in the invoice to their finance department? Yeah, it wasn’t a request.
Once they’ve informed you, even if you do send it to them, they’ll simply assume you’re CCing them a copy and that their department is processing the payment as we speak. Even if they do know that you’ve only sent it to them, you’ve given them fodder to delay the payment process.
Every person in your organization, as well as your clients’, is responsible for a specific job. You wouldn’t ask your HR people to keep an eye out for an incoming bill from a seller in your supply chain, would you?
And if they didn’t notice an invoice sitting amidst the dozens of emails they receive everyday which are actually relevant to their job, you would hardly blame them for the delay caused to your supplier’s Accounts Receivables now, would you?
Just double-check with your point-of-contact in the client organization over who exactly is supposed to receive your invoice, and make sure you send it to the right person.
4] No Mention of Due Date on Invoice
Unless you actually mention it’s a “Net 30” payment term on your invoice, don’t expect your client to actually pay and clear your Accounts Receivables due within 30 days in most cases.
Moreover, unless your work contract as well as invoices clearly spell out that the payment term is “Net 30”, chances for legal relief measures to come through are quite slim if you do end up asking your client for late payment interest.
5] No Information Provided On Payment Preference or Required Payment Details
Many Indian B2B SMBs and startups often believe it to be in poor taste if bank details and such are included within the invoice itself. Sellers often take such measures to somehow mean they’re cash-strapped and desperate for payment, which is the opposite of the image they wish to portray.
But putting our cultural obsession with image portrayal over all else aside, imagine yourself as a buyer for a second — which you indubitably are, as a functional business — and choose one among the two scenarios listed below.
Scenario A: Your seller sends you the documents for payment. You need to consult the purchase order emails to confirm which services or products are included in the work done for you since the bill lacks an itemized list, then the invoice for the amount, and a third email for the bank & payment preference details.
Scenario B: Your seller sends you one itemized invoice, complete with the charge for every individual piece of work performed for you, as well as the bank payment details at the end. You don’t have to search for more details elsewhere or spend time looking for ways to pay your supplier.
Which scenario among the two would get your sellers and suppliers paid faster? Since you’re a busy person, juggling several hats at once as the CEO of your SMB or the founder of your startup, the logical assumption would be scenario B.
6] Missing Client-Requested Format Preferences or Additional Information
When we approached several CEOs from mid-sized SMBs to better understand the needs of the market, one feedback we received was that invoices were also commonly rejected because they failed to comply with the buyer’s invoicing requirements.
The simple truth is that by the time an organization grows big enough to become a mid-sized B2B buyer in the supply chain, they are probably dealing with hundreds — if not thousands — of invoices each month.
In an effort to streamline their invoice processing system, and to comply with their own regulatory and administrative needs, many of them have developed specific invoicing requirements which they need their suppliers to follow. While larger organizations such as Hindustan Unilever often publish these invoicing guidelines on their website, you may need to personally confirm these details with smaller clients before sending them a bill.
Sometimes it may be additional information such as your Tax Identification Number, while others may require specific ways of itemizing the products or services rendered. Whatever the case may be, rigorously stick to any invoice-formatting preferences handed to you by your client.
In Closing: Avoid Invoicing Errors — Your Survival Depends On It
The easier you make it for your clients to pay you, the faster you’re going to clear your overdue Accounts Receivables.
Unfortunately, if an SMB or startup entrepreneur today needs to run a tight financial ship, they must forget the sense of entitlement on which most people operate. Even though logically any compensation owed for work you’ve performed is your money sitting in the client’s account, that means nothing if you can’t get them to make the payment.
Remember that 1 in every 3 B2B SMB invoices generated by you are usually rejected because of rather small and negligent errors — the sort that you can easily avoid by double-checking every invoice before you send it in.
The upside? You greatly increase your chances of being part of the 50% of SMBs which survive past their first five years.
But, if you’re as busy as startup and SMB CEOs often are, you rarely have the time to check your invoices again & again — given that you’re juggling fifteen corporate roles at any given point in time.
Well, that’s where technology comes in. Side-step these concerns with integrated technological business tools — like Hummingbill Collect’s new In-Gmail E-Invoicing feature.
Invoicing is an indispensable yet under-rated aspect of business. However well-researched it may be, our perspective on its impact represents but one voice.
So, in a bid to better understand our visitors and loyal readers, let us know what you think about this subject in the comments section below. As a buyer, how often do you see erroneous invoices causing payment delays for your suppliers? Or as a seller, what are some of the worst situations you’ve ever been in because of an erroneous invoice?