Invoice payment terms: Top seven tips
This post was originally published in the Xero Small Business Guides
Small business cashflow depends on prompt payment. We analyzed over 12 million invoices to discover some revelations about getting paid on time. We also asked the small business community for their tips and tricks.
You’re not alone: Invoicing insights from small businesses
Over 1,500 members of an online business community shared their experiences about invoicing and payments with us. We’ve taken the best of their helpful advice and feedback, and summarized it here. We start with some of their challenges, suggestions and advice, then we list the top seven tips for getting paid faster.
The most challenging aspects of invoicing
Invoicing isn’t always straightforward. The basics are simple enough once you have an invoicing system in place, but other commitments and interruptions can sometimes get in the way. Our online business community members came up with the following invoicing challenges:
- Getting invoices out on time when you’re busy
This is a common problem. When your business is thriving and you’re busy working to make money, taking the time out to send invoices can be difficult. Consider using cloud accounting software to quickly prepare and send invoices.
- Following up on overdue invoices
This is related to the previous point — time is always at a premium in a busy small business. Again, cloud accounting software can help by automating reminders based on your settings.
- Splitting payments across multiple invoices
Account reconciliation can be tricky at times. Make sure your clients include your invoice numbers as references for every payment they make, to help you work out which invoices have been paid.
- Invoicing quickly and accurately
It’s important that your team communicates effectively with your finance manager or accountant, to ensure that work carried out is invoiced properly every time.
- Ensuring that all completed work is invoiced
Time-tracking software can be useful here, especially when there are several people working on each client account. Be sure to get this right, otherwise your business will be throwing away money by working for nothing.
- Creating an invoice that doesn’t go to the bottom of the pile
You can design your invoices so that they stand out, but what’s more helpful is to build up a good working relationship with your client’s accounts department. Don’t rely on a pretty invoice to get you paid.
Getting invoices out on time when you’re busy is a common problem.
Suggestions for getting an invoice paid
Sending an invoice is only part of the process of getting paid. Some of your customers will pay on time and without reminders, but others may need to be prompted. Here’s are some tips for getting your invoice paid:
- Add “overdue” fees
If you’ve set your payment terms out clearly on your invoice and the client has ignored them, in most countries you are entitled to charge interest in the form of overdue fees. Be prepared for robust feedback from your clients if you go down this route, and consider reversing the charge once the lesson has been learned.
- Communicate with your clients
Sending out reminder emails can help, but if your client’s accounts department doesn’t really know who you are, they might ignore your reminders. A better option is to pick up the phone and talk to someone. Reminders from a real person are much more persuasive than automated emails.
- Keep your payment terms short
Why wait 30 days for payment when you could be paid in a week? If you’re serious about the work you do, and if you try your best to supply your products and services to your clients’ deadlines, there’s no reason why they shouldn’t try their best to pay you just as quickly.
- Call early and call often
Let the client know immediately their account is overdue. Send a statement or reminder after a few days, and pick up the phone if the payment is overdue by a week or more. Don’t let it drift.
Things you should know about invoicing when starting your business
Hindsight is a wonderful thing. Most people don’t know a great deal about invoicing when they start their first business, so it’s good to learn from people who have already been through the learning process. Here are some tips:
- Track time accurately
It’s not enough to do the work and then try to recall how much time you’ve spent on it. Set your timer going when you begin and switch it off when you finish. Include all the hours you work on each client’s projects. That way your invoices will be accurate.