Invoicing & Collecting
Invoicing & Collecting
Invoicing your client/customer in a timely manner is an obvious yet critical task. Too often business owners sit on an invoice and then send it out 2 to 3 weeks after fulfillment only to wonder why payment takes so long. Here are a few things to keep in mind when invoicing your clients/customers.
1. Set up a payment schedule before you even get your first customer. Take a look at the industry norms, do they use a 30 day term? A 45 day term? Payment right away? The amount of time a customer or client has to pay you should be included in all contracts and in the invoice paperwork.
2. Remember, when setting up your terms, it’s like you are extending credit. If you give your customer 60 days to pay you, it’s as if you’ve given them a line of credit for the amount owed to you without interest accruing. Having too many accounts receivable is a liability to your business, so be smart about choosing your payment terms.
3. If you are doing recurring work for someone, set up a payment schedule with them. Do they like to be billed on the 1st or 15th every month? Do they prefer to be billed when work is completed? Ask.
4. Send out your invoices immediately. Do not take longer than 2 business days to get an invoice in the mail or in your customer’s inbox.
5. Do your clients prefer to have an invoice emailed or mailed to them? If they prefer email, kindly request a confirmation email back from them each time you email it and if you don’t hear back, follow up with a phone call to be sure they’ve received it.
6. Set up an invoice numbering system. Be as clear as possible. Try and come up with a system where years down the line, you or any employee will be able to clearly understand what client it was for and the services rendered. Maybe you only have a few clients so you only need to sequentially number your invoices. Or if you have a lot of clients you organize them with letters and numbers. If you are billing Sally’s Sandwich Shop for instance, you may decide to label all Sally’s Sandwich Shop’s invoices starting with SSS. You may decide to include the year as well SSS2011-0001, SSS2011-0002, etc. Find your best system for organizing invoices so you can refer back to them quickly.
7. Always include as much information as possible on your invoices, such as the accurate date, date payment is due, any penalties for late payment, what services were rendered, where to send payment and anything else pertinent to the client or the job. Again, you want as much detail as possible so if in the future you need to look back at the invoice, you know exactly what was done.
8. If you have an estimate system, be sure to include the estimate number on the invoice. Again, you may decide to name the estimate with the vendor code you’ve set up: SSS2010-0001e, SSS2010-0002e. By doing this, you are able to cross-reference your estimates with your invoices as well.
9. If you have codes for your inventory, be sure to put the inventory code along with an item description so your client/customer is clear on what they’ve ordered for their records.
10. If you cannot afford accounting software and are using a program like excel to keep track of your invoices, be sure to enter in the date the invoice was sent or emailed for your reference. This will give you an accurate timeline for receiving payment.
Collecting payment should be relatively easy if you’ve established a good working relationship with your customer or client. But what if you haven’t? Or you have a revolving door of customers? Having few accounts receivables on your books is ideal and keeps your business solvent. Here are a few things to keep in mind when collecting from your customers.
1. Set up a system that allows you to keep on top of your receivables. Most accounting software will do this for you, but if you are using a program like excel to keep track of invoicing, consider putting it in your calendar. Keep a list by day of accounts due.
2. If you are experiencing a number of customers being tardy on their payments, consider creating a light hearted email blast to remind them about payment. If you are on a net 30 payment term, send an email blast to all customers around day 14 to remind them payment is due in two weeks.
3. Payment terms should be agreed upon and put in writing before any work is done. If you are utilizing an estimate system, be sure to have the appropriate terms on the estimate and have the client sign the estimate before you start the project.
4. Follow strict procedures when collecting from your clients. Sometimes we can tend to feel a bit meek when asking for payment, but you own a business now, YOUR business, and you owe it to yourself to be strong and ask for payment. There is nothing wrong with being firm on this.
5. Follow up with the appropriate measures of communication: email, phone call, voicemail, fax, text message and as a last resort, drop in on your client in person and request payment before you leave.
6. Try and avoid extending payment terms. If a client says they simply do not have the money to pay you now, work out a payment plan. 1/2 now, 1/2 in 30 days, etc.
7. If you are doing a big project for someone, it’s not uncommon to ask for half of the project fee up front and the remaining balance when the project is finished.
8. If you’ve tried everything, consider using a collection agency or other legal entity.