No small business owner can deny how vital an invoice that is paid on time is for their bottom-line. Without a reliable and seamless invoicing system, your business might see major delays in payment. Without adequate cash flow, you are looking at exorbitant loans, maxed credit cards, and other less than desirable finance options and before you know it, your business is under a mountain of debt and is hurtling towards a crash and burn.
Though a consistent cash flow is not easily achieved, it is not impossible. One of the ways you can ensure that you are paid on time is accurate invoicing. Getting paid on time becomes easier when you avoid simple billing mistakes that lead people to forget, ignore or even dismiss your invoices. Whether you use invoicing software for small business or manage it all manually, here are some common invoicing mistakes that small business owners make and how they can be avoided:
These Are The Invoicing Mistakes Made By Small Businesses
1. Not Signing a Contract
A very common billing mistake is not signing a contract with each and every one of your customers. Even if you know a customer on a personal level, do not skip the formality of signing a contract. The contract must clearly mention the terms of service and payment. A signed contract can help you avoid miscommunication with your customer and delays in payment that may result from that. It secures your business from customers who may try to get out of paying you. Create a watertight contract and get it signed. File them in an organized manner and store them securely.
2. Not Stating the Payment Due Date
Another fairly common invoicing mistake is not clearly stating a payment due date on the invoice. You must state the number of days or a specific date by which you expect to be paid. Customers may not pay right away and delay your payment by days, weeks or even months if you do not clearly mention a due date. If your invoice mentions a due date, it increases the likelihood of it being paid on time no matter who is handling the invoice at the customer’s end. It also creates a sense of urgency.
3. Not Providing Payment Options
Too often small business owners can’t think beyond traditional payment methods and this is a fairly rampant billing mistake. The new-age customer may be more likely to pay an invoice online, so you may want to look into using online payment systems such as PayPal. Make it easy for your customers to pay you. Provide them with options. Also ensure that they are aware of the various payment options when they receive the invoice.
4. Not Billing Regularly
Another invoicing mistake is taking for granted that the customer will be quick to pay you. Don’t just go by your instinct or a customer’s payment history. The longer you take to generate an invoice and send it to your customer, the longer you will have to wait to be paid. You do not want to find yourself having to refresh the customer’s memory regarding what the invoice is for. This will only create complications and further delay payment. Establish a billing system where you send scheduled invoices to your customers. In this way, you give the customer enough time to plan the payment of your invoice. Nobody likes to be surprised with an invoice when they do not expect it. If you have a set of customers that you bill on a recurring basis, it may be a great idea to invest in a recurring billing software. They will automatically issue invoices, reminders and track payments in a timely manner.
5. Not Listing Details
Customers must know exactly what they are being billed for. Add details about the product or service in the invoice to avoid any ambiguity. Billing mistakes like these create a situation where the customer does not pay the invoice on time because he or she is not sure what it’s for. Do not overlook any details and provide specific information on the invoice.
6. Not Incentivising Prompt Payment
Everybody loves getting a discount. Create incentives for your customer to encourage timely payment. Offer prompt payment discounts. While giving a discount may not sound very appealing to you as a business owner, you will make a considerable invoicing mistake if you do not provide it. If you do, you will appreciate the cash flow that is created as a result of being paid on time or even early.
7. Not Charging Interest Fees
Apply interest on invoices that are not paid within a reasonable amount of time. You may also choose to turn your invoices over to a collection agency if they are not paid within a certain time frame in spite of repeated reminders. Not creating these safeguards are a major billing mistake. These are unpleasant scenarios but it will be very unlikely that you may have to resort to them. If you convey these terms clearly to your customer, they will most likely pay you on time.
8. Not Creating a System
If you manage invoices manually, there must be a solid system in place to avoid invoicing mistakes. Number your invoices. Store them well. It should be easy for you to locate, retrieve and refer to invoices easily at a moment’s notice. This especially helps when payments are delayed due to some confusion and you need to reference past transactions to provide clarification. Having a system will help you do that quickly, without having to get back to the customer at another time, further delaying the payment. However, a manual system can never be invulnerable to errors and inconsistencies. There are many accounting software now on the market that are specially designed for small business, with easy payment plans, that do not break the bank. An automated accounting system does not just save you a lot of time, money and resources, it also helps you maintain a professional image among your clientele.
9. Not Providing Reminders
More often than not, customers need a courtesy call or gentle reminder to alert them to an unpaid bill. Reminders ensure that you are paid on time, if not ahead of schedule. Most customers even appreciate reminders and even look at it as help from your end.
10. Not Being Aware of the Law
They are many laws at the state and federal level that apply to billing and invoicing. Being ignorant of these laws or not staying on top of recent developments, will eventually lead you to become a defaulter and expose you to heavy fines and penalties. It also creates a sense of distrust in the mind of the customer and may lead them to question your business ethics.
11. Forgetting Your Manners
Try to keep your cool and remain reasonably well-mannered at all times, even when the payment is delayed. It is likely that your customers will appreciate your patience, understanding and composure and they may choose to work with you again or on an ongoing basis. Even if you do not want to deal with a customer again, it is important that you do not treat a customer poorly, for that customer could create bad word-of-mouth about your business.
Going down the road less travelled and meeting challenges head-on while developing a new business can be an exhilarating journey for small business owners. However, it can also be a job filled with many mundane and agonizing tasks, including staying on top of billing and invoicing. It may not be the most fun task, but it is necessary. Avoiding these invoicing mistakes can help you maintain healthy cash flow and remain in business.