An invoice is the promise of future cash payment for goods delivered or services rendered. If you’re running a B2B business, you’re probably firing off dozens of invoices to your customers every week. After all, your cash flow depends on ensuring these invoices are paid! But of all the invoices you’re sending out, how many are actually paid on time?
Apparently, only 63% of invoices are paid on time, according to a recent study. And one of the biggest reasons for late payments come from invoices with unclear instructions, which pushes customers to put it on the backburner instead of paying immediately. To save you from the trouble of dealing with delayed payment due to unclear invoices, we’d like to share some tips on writing effective invoices:
Ensure it's easy to understand
For a start, keeping your invoice simple enables your customers to know exactly what they’re getting billed for. List the goods or services in a way that the customer can easily understand; for example, instead of listing your products by SKU (SS15DrRM), writing out the product name in full (red dress, size medium for Spring/Summer ‘15) lets your customer know exactly what they ordered at a glance.
Similarly, putting your company’s logo in a prominent position (the top right corner in our case) helps your customers to identify your business. Also, by personalizing your invoice with your business logo, it’ll make you look more professional… and increase your chances of getting paid by 300%!
Send it to the right person
When you’re sending an invoice, you want to make sure the right person sees it and processes it. When addressing an invoice, some common mistakes are:
a) Sending it to the wrong person
b) Sending it to too many people
Firstly, if you’re addressing your invoice to your contact on the customer side but you’re constantly experiencing late payments, you might want to check with them about who’s in charge of paying you within your customer’s company. There’s a likelihood that your contact diligently forwards your invoice to the finance team, but it could be lying lost and forgotten in the latter’s inbox.
Secondly, if you’re sending your invoice to more than one person, you’re also running the risk of everyone leaving it on the backburner, as everyone assumes that someone else will be taking care of it.
Clarify payment terms
What’s Net-30? Basically, it just means that you expect your customer to pay for the invoice in 30 days.
However, setting Net-30 payment terms doesn’t mean that you’ll definitely get paid on time. Most debtors pay 2 weeks late regardless of whether payment terms are due immediately or due in 30 days. In light of this, if getting paid in 30 days is critical for your business cash flow, decreasing your payment terms could be a great way to ensure you get paid in time.
After all, if you’ve tried your best to provide your customers with goods and services according to their deadlines, it’s only fair for them to pay you promptly as well.
In our invoice template, we've created a section titled "Notes" where you can clarify payment terms, as well as adding early payment incentives and late charges (but more on that later).
Send out invoices ASAP
Once you’ve delivered your side of the agreement, it’s time to send your customers an invoice. Invoicing them as quickly as possible helps to encourage them to pay faster. After all, if you’ve delivered your products on Monday, why wait until Friday to send your customers an invoice?
If you’re billing your clients for services rendered, sending invoices upon the completion of a project serves another purpose: it encourages them to pay while the value of your work is still fresh in their minds.
Be flexible about payment methodsHow do you accept payments from your customers? For example, do you only accept cheques sent in the mail, or through PayPal?
If you do, it may be time to rethink your policy on payment methods. By setting up more payment options for customers to choose from, you’re making it easier for them to pay you. This way, instead of having to make a special trip to the post office, they’ll be able to pay you in a way they’re comfortable and familiar with.
Incentivize early payments
If you’ve noticed your customers are putting off payment until the last possible date, it might be time to start incentivizing early payments by offering a small discount for invoices that are paid in advance.
To do this, you need to decide on a specific early time frame. Make sure you feature these incentives in your invoice to motivate the customer to react to the offer you’re putting in front of them. By rewarding your customers for their business, you’ll be able to encourage loyalty while ensuring they pay you promptly.
Charge for late payments
If incentivizing early payments is a carrot to encourage prompt payment, charging for late payments would be the stick. By adding late fees to your invoices, you’ll add a sense of urgency to your invoices.
However, by doing this, you need to be prepared for vocal feedback from your customers -- especially those with the bad habit of paying late.
Remember to send reminders
Once the due-date has passed, it’s time to follow up with your clients before you begin implementing late charges. After all, it’s possible that your invoice has slipped their mind, or it’s been lost in the mail.
For a start, you can send out reminders like a personalized email, a text, or a phone call. Sending these reminders lets you remind your client about the money they owe you, and that you are serious about getting your invoice paid.Tip: If you’re sending your invoices through email, start using software that updates you once the recipient opens the message.
Automate by moving to the cloud
Some business owners spend up to 10% of their work time on invoices.
If you feel like you’re spending too much time on invoicing clients and chasing them for payment, it could be time to start looking into cloud accounting software like Xero and QuickBooks, especially if you’re using other cloud software like Shopify (and TradeGecko!).
In addition to enabling you to prepare and send invoices quickly, cloud accounting software helps you to manage overdue invoices by automating reminders. Also, instead of needing to return to your office to send an invoice, you’ll be able to send invoices anywhere.
With the right invoicing process and a great template, you’ll be able to reduce the time you’re spending on collecting money from your clients, and concentrate on what really matters: Growing your business.Sources: 1 | 2