How you invoice your customers can make a big difference to your cash flow. You may be giving your customers excuses not to pay on time without even realising it.
Really? Yes! The way you invoice your customer has everything to do with how the payment will be made. Let's look at what you can improve in your invoicing process to encourage customers to pay promptly.
1. State your payment terms
Before you offer credit to your customer, make sure you negotiate the payment terms. Of course, the shorter the term, the quicker the payment will be made. However, in some instances you will be tied to what is standard in your industry.
What is important is that the customer understands the terms and agrees to these terms before you start dealing with them. As a reminder, always ensure that the payment terms are listed on each invoice. Stating the actual due date is often more effective than just the payment terms.
2. Include payment details
Don't give your customers any excuse not to pay on time. Ensure that they have all the information they need to send payment. It should be listed on the invoice including the complete detail of the work completed or goods provided, a purchase number if they have provided one, the actual due date (for example, if the invoice is issued on 1st September and the payment terms are fourteen days, insert the due date as 15th September) and all the available payment options.
Some companies also require details such as a business number, registered address, tax status (if registered for goods and services tax, the invoice must state "tax invoice") and business contact details in order to pay you. Ask your customer what information they need on the invoice.
3. Remind them of progressive payments
For larger jobs or longer-term projects, consider issuing progress invoices. For example, if you are providing a consulting service over a six-month period, you may consider payment terms such as 30% upfront, 50% on provision of first draft of final report and 20% on completion of the work.
4. Don't forget to take deposits
Negotiate an upfront payment for special order of goods and services or longer-term projects. In certain industries, this is standard. Think about when you order a new piece of furniture to be specially made. A deposit is often required, and the furniture is fully paid for six weeks later when the assembling is completed. A customer deposit may assist you in purchasing stock to complete the work, which means you won't have to supply this from your own funds.
5. Provide easy payment options
Although many of us don't like to pay bank charges that come with bank services such as EFTPOS and credit card processing, it is probably cheaper in the long run than spending time chasing payments and banking cash or cheques.
If you make it easy for the customer to pay, such as via direct payment into a bank account or credit card payment, then it is likely that they will pay quicker. With bank feeds, you should be able to download your bank records directly into your accounting system, which will also save you time and effectively money.
6. Send invoices early
The faster you invoice the customer, the earlier they will need to pay to adhere to the payment terms. With each completed job or sale, the invoice should be prepared and issued with the goods or services when delivered or sold — not at the end of the week or month.
This way the payment terms commence at the earliest possible date, and this will ensure that invoices are not missed or overlooked. Consider emailing your invoices directly to the person responsible for making the payment (the finance area) for fast delivery. If you opt for a "read receipt" on the email, you will know that they have received the invoice.
Although we tend to focus very much on securing the sales in our business, it is equally important to receive the money as well. Spending time ensuring that your invoicing procedures are the best they can be will better your chances of being paid sooner and improve the cash flow for your business.