9 Business Invoicing Best Practices for Small Businesses
Small business invoicing seems daunting when you first start out, but it’s important to manage well so you can avoid cash flow issues. It can be maddening to send out invoices, only to wait for days, weeks or even months for clients to pay. However, learning, understanding, and following the best invoicing practices for your small business can help make the process as simple as possible.
1. Know what your contract needs.
Before taking on a job, make a detailed contract of work. Contracts are extremely important when it comes to small business invoicing. Since they’re legally binding agreements, they can help you out if a customer refuses or fails to pay. When creating and negotiating contracts, make sure you lay out all of the details. Don’t be afraid to be as explicit as possible. This will come in handy should any problems arise.
You should include payment terms in the contract, who pays whom when the payment is made, and the payment methods and conditions. Payments are often a contentious issue, so make sure you are detailed with dates, times, and requirements.
Every business has different requirements, but you can customize each contract to fit your business needs like the scope of work, payments, and how to resolve issues or breach of contract.
Once you have your contract lined out, you can then focus on your billing and invoicing process.
2. Include invoicing foundations.
When creating invoices for your business, be sure to include the basic essentials, including:
- Issue or invoice date
- Invoice number
- The billing period
- Your business name and billing address
- Your customer or client name and address
- Invoice payment terms and the due date
- Your bank details
- Your contact information
- Sales tax, if applicable
- Late payment details
- Other relevant information (client reference number, purchase order details, etc.)
Having detailed information on your business invoice ensures your customer has enough information to send their payment,speed up the payment process and avoid an unpaid invoice.
3. Make your business invoice as straightforward as possible.
Your professional invoices should have a thorough breakdown of the charges, including item price(s), packaging, delivery, hourly rate, etc. Detailed information will help your customer better understand how you arrived at the total amount. If you’re performing services for a customer, like landscaping or accounting, include a copy of your timesheet or breakdown of hours so they know how many hours you worked and your hourly rate.
When a customer disputes an invoice, it can prolong the entire process, costing you time and money. Ensuring they have a clear understanding of their bill will help avoid any disputes or disagreements.
4. Send invoices as soon as possible.
Never send your invoices late. Doing so decreases your cash flow and increases the chance of an unpaid invoice, so make sure you send an invoice out as soon as you complete a project. Business invoices must have the payment terms clearly defined so the customer knows how long they have to pay and what late fees you may charge if they don’t pay on time.
If you’re not sure how to create an invoice, Kabbage is here to help. Kabbage Payments makes it easy to send invoices quickly by allowing you to create and manage all of your invoices in one place. You can create personalized professional invoices to send your customers via email or a custom pay link you can send them through text, email or the web.
5. Consider using read receipts.
If your bookkeeping/invoicing software or email service offers it, consider turning on read receipts to be notified when your customer opens the invoice. This helps ensure your invoice was delivered on time. Knowing when your customer has opened your email or invoice also allows you to send payment reminders based on that time frame.
Tracking the history of each individual invoice is also a good way to manage your invoicing. That way, you’ll know exactly when each is sent, delivered, paid, and deposited into your account.
6. Offer multiple ways to pay your business invoice.
While you should tell your clients how you prefer to be paid, you should also provide them several options to pay in a way that’s ideal for them. The most common payment methods are cash, debit/credit card and checks, but don’t rule out methods like money orders or direct deposits.
Giving your customers multiple options to pay invoices shows you’re easy to work with, and they’ll appreciate the flexibility. And fortunately, products like Kabbage Payments make small business invoicing much more seamless, allowing your customers to pay any amount less than $10,000 through a personalized invoice or any amount up to $10,000 through a custom pay link.
7. Know how to follow up.
An important aspect of managing multiple invoices is following up with customers so that you get paid faster. Sometimes clients take a while to pay you, which can be frustrating. However, it’s important to remain professional and reach out to your customer via text, email or phone call to ensure they’ve received the invoice and will pay you soon.
Be sure to follow up shortly before the due date as well. Friendly payment reminders as it gets closer to the due date quicken the payment process, put you at the top of their list, and may even refresh your customer’s memory if it somehow slipped their mind. You might also learn that your customer needs more time to send their payment, allowing you to mitigate any cash flow risk.
8. Keep track of late business invoices.
Unfortunately, late payments aren’t uncommon. In fact, QuickBooks found that one-third of small businesses report 10% of their invoices as being paid late. What’s more, another third say the late payments lasted anywhere between 3 months and 2 years. So, keep an eye out and follow up on a continual basis to avoid any potential damage to your business.
Small business invoicing is vital for cash flow and reducing your overall stress. How well you create and manage invoices directly correlates to how long you’re able to stay in business, so be sure to learn and follow the small business invoicing best practices to maximize your profitability.
9. Always be professional.
Customers can be difficult at times, which makes it hard to stay calm. However, maintaining the highest level of professionalism when managing your invoices is essential. Never threaten, yell at or disregard customers when they refuse to pay or question the previously agreed upon bill. Instead, try working with them in a collected manner to ensure they pay you. Should problems persist, let them know what legal actions you’re considering taking based on the contract they signed.
It’s also important to maintain professionalism after a customer has paid. Sending a quick thank you note once you’ve received payment assures them it’s gone through and leaves a lasting, positive impression that’ll improve your customer satisfaction (and in turn, increase business).
Small business invoicing is key for cash flow and reducing your overall stress. How well you create and manage invoices directly correlates to how long you’re able to stay in business, so be sure to learn and follow the invoicing best practices to maximize your profitability.