For many entrepreneurs who start a business, having customers who pay on time, every time, would only happen in an alternate universe. While you can’t eliminate the hassle of nudging customers to pay, you can make invoicing less stressful.
Invoices detail how much money a customer owes for goods or services provided by a business. Small-business owners use invoices for accounting and tax purposes, as well. When customers let invoices slide past the due dates, maintaining cash flow can become a challenge for business owners.
To help set up your business for success, here’s how to invoice more effectively.
1. Lay out your expectations in writing
Provide a quote to your customers before any transactions occur — and do it in writing. A conversation is fine for an initial agreement, but follow up with more specific terms, including an estimated cost, time frame for delivery of your product or service and the kinds of payment you accept.
Once you’ve provided a service or product, the invoice should detail exactly what a customer needs to know to make a payment, such as:
- An itemized list of the goods or services provided — including costs, taxes and totals.
- Specific payment instructions with an address to send a check to, credit cards that are accepted, or directions for using PayPal or another online payment system.
2. Use invoicing software
If Excel is your only invoicing tool, you’re missing out on the benefits of automating. Invoicing software can reduce mistakes because you don’t have to manually enter billing information. This feature will come in handy with repeat clients. You can send invoices digitally to streamline the process.
3. Track invoices consistently
Software can make invoicing more efficient, but remember to keep a digital or paper trail. Create a chronological, numerical system to assign your invoices and stick to it. A system is only useful if it’s consistent. This organization also will be a big help when tax season arrives.
4. Send out invoices immediately
As soon as the services have been provided or goods delivered, send your invoices while you’re still on the client’s mind. If you want to get paid faster, offer the ability to make online payments at your website or via a mobile app. Some businesses send email as well as snail-mail invoices as an extra reminder.
5. Be clear about payment terms and follow up
To increase the odds of getting paid on time, lay out clear directions for the payment due date. You can ask your client to pay by a specific date or within a number of days, typically 14 to 30 days after the date of the invoice.
Consider charging an interest fee on late payments, but be sure to disclose the interest fee in your written agreement with a client. To motivate clients, you could offer discounts for paying early or by check instead of credit card.
Before you expect the payment, send a written reminder that payment is due and note the day it is due. If the date passes, follow up within a week and include any interest fees that are part of the new payment.
If you end up with a slow-to-pay client, always remember to be polite in your interactions. A simple “please” and “thank you” can go a long way toward maintaining a business relationship. If an invoice slips badly, consider reaching out to the client to see if you can arrange an alternative payment plan.
Anna Helhoski is a staff writer at NerdWallet, which provides clarity around decisions that help you start or grow your small business. We provide clear unbiased information, entrepreneur-focused advice, and tools for small-business loans, tax and legal issues. We also connect you with experts who can answer questions about growing your small business.