Are you making the most of your business invoicing system? If you’re like many small business owners, you might struggle with establishing a regular business invoicing routine as part of your cash flow management.
According to Intuit’s 2019 State of Cash Flow Report, 61% of vendors around the world have a tough time coordinating the inflow and outflow of money in their businesses. And while you might worry most about the bills going out, the stream of money coming into your business deserves close attention too.
Is your business invoicing system as strong as it should be? Here are 10 common invoicing mistakes that you might not even realize you’re making, plus how to fix them. But first, you should understand why business invoicing plays a critical role in your business’ financial health.
Why is Business Invoicing Important for Small Businesses?
Sending out bills for work you’ve done and/or products you’ve sold is an important activity when it comes to keeping your cash flowing smoothly. A strong and efficient business invoicing system helps to maximize your odds of getting paid for work done. It contributes to a strong accounts receivables turnover ratio. And it makes it easier to pay your bills in full and on time. This leads to a stronger credit score and more favorable business loan terms.
10 Business Invoicing Mistakes You Don’t Even Know You’re Making (and The Solutions You Need)
#1. Not Invoicing – Or Tardy Invoicing
You completed the job, you sold the product, and you feel great. New customer orders come in so quickly you tell yourself you’ll invoice at the end of the day. Yet you’re too tired.
So you delay invoicing. And then you forget the particulars. Or maybe your customer complained so much over their last bill that it’s just too much of a pain to invoice for the half-hour service call you made last week.
Whatever the reason, not invoicing your customers or clients (or invoicing them late) is one reason your invoices aren’t being paid on time. And that is a surefire way to start down a slippery slope to a less profitable business.
Solution: Stop saying “I’ll send you the bill.” Incorporate immediately billing as the last step in your product sale or service call. Use a tablet or smartphone to generate and email an electronic invoice in front of the client. Even if the bill doesn’t need to get paid for 30 days, you’ve completed your first business invoicing step.
Or set aside a time block one afternoon for weekly billing. The key is to establish a routine and stick to it.
#2. Vague or Incomplete Product or Service Descriptions
Including vague or incomplete product and service descriptions on your invoicing causes two potentially problematic invoicing issues.
First, your customers could delay paying because they just can’t figure out what it is they’re being charged for. It’s a hassle for them to call you to figure it out.
Secondly, a lack of detail on invoices makes more bookkeeping and accounting work. And the longer it takes your finance staff or professional to make sense of your transactions, the more it costs your business.
Solution: Make it a point to include a detailed description of the products sold or work completed. Include
- Invoice #
- Client’s name
- Your business name, address, contact info and tax registration # if required
- Number of hours worked (for service calls)
- Hourly rate or unit price
- Any taxes charged
- Due Date
- Payment Terms
- Material descriptions and pay rates if applicable
Time spent detailing this information can save you time, money, and headaches later on when you, your customer or financial pro is trying to make sense of that invoice.
Make sure your invoices clearly meet the legal requirements for any invoices your business generates. It’s also a good idea to become familiar with commonly used business invoicing payment terms.
#3. Working Without a Contract
It doesn’t have to be fancy, but if you’re working with clients without a contract, you could leave your business open to future payment disputes.
Solution: Create a simple contract that includes the payment terms of your business arrangement. Then if a disagreement over payment arises, you’ll have the contract to refer to.
#4. Not Offering Incentives for Paying Early
Do you give your customers the opportunity to save a little by paying early? Adding this option also gives your business the opportunity to collect earlier, which helps smooth cash flow.
Solution: Simply add a line at the bottom of your invoice that says something along the lines of “Due in 30 days, 2% discount for early payment.”
#5. Unexpected Fees/Charges for Customer on Your Business Invoicing
Your invoice is NOT the place to introduce any unexpected costs or overages with customers. Invoices including extra costs or fees the customer wasn’t anticipating could damage your business reputation and lead to disputes, disagreements, or even legal proceedings.
Solution: If, during the course of a job or order it looks like there will be additional costs, let your customer know right away so they don’t get surprised with the bill. Get their agreement to the costs (in writing) before proceeding.
#6. Overlooking Branding and Marketing Opportunities
Have you ever considered your business invoices as a marketing opportunity? After all, your client will (hopefully) review the invoice carefully to make sure it’s accurate. Make the most of their attention to let them know about additional products, services, sales or discounts.
Solution: Just below the “Thank you for your business” note (you have one of those, right?) add another line. Say something like “ask about our annual service contract” or “check out our online weekly sales page” right on your invoice. And ensure your logo is front and center at the top of the page to remind customers of your brand.
#7. Overlooking the Marketing Data Hiding In Your Invoices
Today’s technology equips small business owners to gather more data than ever before through programs such as electronic invoicing. And while you might enjoy the ease and efficiency of creating and issuing an electronic invoice on the fly, don’t forget about the data that your electronic business invoicing has collected.
Solution: Pay attention to metrics such as when you’re generating the most invoices, which products sell best when and where. This kind of information can help you expand your product offers, note weekly, monthly, or season trends, and identify niches you didn’t know you had.
#8. Offering One Payment Term Only (ie. credit card, PayPal, etc.)
People today want options when it comes to payment. Accepting just cash or credit card can brand you as a business that isn’t keeping up with today’s payment trends.
Solution: Talk to your financial services provider about accepting wire transfers or electronic payments such as PayPal, Square, or Stripe, depending on your business.
#9. Using an Old-Fashioned Paper-Based Business Invoicing System ONLY
Even businesses that depend on an electronic invoicing system sometimes still produce printed invoices. And depending on your lender and accountant’s technology comfort level, they might prefer it. However, if your business uses only a paper-based invoicing system, you could needlessly lengthen the time it takes to collect. And this has a negative impact on your accounts receivables turnover ratio (LINK). Plus you’ll pay for paper, printer ink, postage, and labor.
Solution: Try electronic or online invoicing. You’ll save time, money, and could even find your business gets paid faster than before.
#10. Being Unaware of How Invoice Factoring Can Help Your Business
Have you heard the term “invoice factoring”? While most (if not all) legitimate businesses offer invoices or receipts, far fewer take advantage of invoice factoring. This practice refers to borrowing against accounts receivables. It can give your business a quick cash injection when needed. However, many business owners could be unaware of how invoice factoring works.
Solution: Contact us today to discuss the opportunities, requirements, fees, and charges of invoice factoring and learn how it could help your business right now.
Invoicing probably isn’t the most glamorous thing you’ll do in your business today. Yet having a solid business invoicing routine is an important ingredient in your financial success. So take a second look at what you’re doing when it comes to billing clients, and try a few of these solutions.