Positive cash flow is necessary for the survival of every small business. But you're not going to make any money until you bill your customers and they pay you.
Unfortunately, many small-business owners never mastered the art of invoicing. As a result, they find themselves spending an exorbitant amount of time—time they really don't have to waste—trying to collect payments.
If you struggle with invoicing, it’s time to learn the secrets of creating and sending invoices that get you paid on time and in full.
Invoicing 101
An invoice is the document you send to a customer that outlines what you did for them or what you sold them, how much it costs and when your payment is due. And though it sounds simple enough, there's a lot to consider when creating an invoice.
"It needs to include as much detail as you can fit, without making it hard to read," says Brian Good, director of credit and accounts receivable at Diesel Jeans. "This information must also match how you sold the item to the customer, so if you sold it using a style number, then ensure that style number is on there. If you sold it using a style name, then ensure that name is there. This helps avoid any confusion."
What other crucial information should be on your invoice?
- Address where the payment should be sent
- Instructions for any correspondence (online or offline)
- Payment terms and due date
- Actual cost and any prompt payment discounts that might apply
- Cost of freight
- Applicable taxes
- Tracking information
- Quantity of items shipped
- The customer's billing and shipping addresses
- The date of the invoice
More advice from Good: Consider making each customer's point-of-contact at your company an individual and not just a department.
"We like to have a specific contact name for the person to call," Good says. "So if we dedicate someone in customer service or returns or credit, we want that dedicated person's information on the invoice. It gives it that personal touch."
There are several ways you can generate an invoice. You can use a word-processing program or an invoice-specific software program, you can print them straight from the accounting program you use to keep your company's books, or you can have an outsourced provider create them for you.
There are many different invoicing options for small businesses at different price points, but the best invoicing method for your business is the one that's user-friendly and captures the information in a manner that makes the most sense to you.
Delivery Details
Once you've created a detailed invoice that includes everything the customer needs to know, what is the best way to get it to them? "Ideally email is the best from a cost perspective, but not everyone is willing to accept this format," Good says. "So for some, you still have to go the old-fashioned mail route. Even that can be improved on by selecting a service provider that can drop the mail to different locations based on the closest ZIP code to the end destination."
And Good also suggests not generating an invoice until the end of the transaction in order to cut down on any confusion that multiple and partial invoices might cause your customer.
"Whatever ships that day gets invoiced that day," Good says. "We'll accept payment upfront, but until that items ships, no invoice is created."
Overdue Payments
Of course, just because they've received your invoice, doesn't mean every customer or client is going to quickly remit a payment. Researchers at Xero accounting software analyzed 12 million invoices generated by small businesses during a three-year period and found that no matter whether an invoice was due upon receipt or 30 days after receipt, it was still paid an average of two weeks late.
So what do you do if your invoice didn't result in a payment? Good doesn't recommend issuing a second invoice. Instead, he prefers sending customers a monthly statement that lets them see all open invoices or directing them to an online portal with the same information.
The most successful invoices are the ones that spell it all out for your customer and make your payment expectations clear. Combine that with the personalized touch of a direct company contact, and you should cut back on payment times and improve your company's cash flow.
Read more articles and see exclusive videos in OPEN Forum’s special section on Managing Your Money.
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