Managing a small business is an adventure, yes, but there are some daily tasks that are essential but perfectly non-glamorous. One of them is invoicing and you do not need to “love” it, but being competent at it will do just fine if you are to keep the rest of your business adventure alive and kicking.
To master invoicing, you do not even need to become an accounting wizard overnight or study thick books. This overview of 15 invoicing practices you need to avoid, will save you enough time to avoid major pitfalls and come up with an invoicing strategy that will work for you in the long run!
So, let’s get started! You can try making a checklist of practices you are “guilty” of now (and have every right to be) and underline them while memorizing the corrective measures we recommend here.
1) Not knowing your client’s pay cycle
This is hardly a cardinal sin of invoicing, but it is a fairly common one. Your client may stick to a pay cycle which is completely different from your own and your mistake is assuming that everyone applies the one in use at your small business. In practice, this means that your customer may make it a part of their payment policy to process invoices on the first day of every calendar month. In this case, your demands for payment will fall on deaf ears until the right date kicks in. So, when acquiring a new client for your business, it’s always useful to ask them about their payment cycle or invoice processing practice in advance, so as to better harmonize your own expectations and payment projections with theirs.
2) Unclear terms for payment
Invoices are not works of literature, so the language in which they are drafted needs to be clear, sparse and to the point. This is particularly important when you define important stuff such as due date or fees for late payments. In order to avoid unpleasant surprises, you should also use precise wording when defining prices, description of products/services you provide, their amounts and time intervals in which they were provided. Ambiguity is not your friend here, so you should also abstain from using complex financial terminology and stick to simpler phrasing. Just remember that the key things your clients need to understand are the due date and what they can expect in case they miss it.
3) Missing payment details
This is somewhat related to what we have already described above, but it can happen, particularly if you are not using invoice templates for any reason. Your invoice may fail to state payment details, such as bank account information, or even provide incorrect payment data. Using a template is useful here, particularly after you fill it up with all information your customer needs for making the payment. In any case, these should include: the legal name and number of your business, its address followed by the name and address of your customer, invoice number and date, due date, description of payment terms, appropriate tax information and a full list of invoiced services and products you provided.
4) Missing invoice number for tracking and reporting
Just like precise language, numbers are your friend with invoicing, particularly if you want to make this process orderly and easily trackable. This is why your invoices should include an established numbering system which you can use to track down individual invoices and file them in your records. Based on this, you can have faster access to all invoices, no matter if you classify them based on their dates or payment status (pending, paid, resent etc.). Using numbers will also make it less likely to resend an invoice for the same thing (which will make you look sloppy) and keep your auditing records in order in case any external checkups are needed.
5) Unexpected payment fee from payment gateways
As a businessperson, you must be aware of the convenience of offering your customers to service their invoices via payment gateways (such as PayPal). Yet, the ability to receive payments in a quicker and streamlined way comes with its price tag – this takes the form of seemingly “invisible” transaction fees that can end up on your invoice. In addition to acting as an unexpected surprise for your customer, these can make your clients feel cheated on, or at least treated unprofessionally, particularly if they were not informed of them in due time.
The best option to avoid his confusion is to choose the payment gateway that calculates the full payment amount together with the associated processing fees, so that the impact of surprise costs is minimized. The other option is to avoid card payment and only go for the platforms that offer support for bank transfers. Whatever you choose, make sure you calculate the cost of going with any provider or bypassing them altogether.
6) Limited payment options
Yet, offering only one payment method can mean shooting yourself in the foot. Getting your invoices paid on time means making the process as flexible and convenient as possible. This means that you should accommodate as many payment options you can support without causing trouble for your business. The usual list should include support for checks, wire transfers, bank deposits and credit cards. If you are feeling like being on the cutting edge of payment technology, you could go with support for payment in cryptocurrencies, such as bitcoin. It’s not hard to at least become familiar with this technology and plan ahead for its adoption down the line, if only to win over younger or technically-minded customers.
7) Storing your clients’ credit card numbers (it’s illegal, yes)
This may seem like a given, but storing your clients’ card security codes or any data from the magnetic strip on the back of the card.is illegal in all jurisdictions, plain & simple. You do not even have to check this with your local regulator. However, you can use a popular payment processing vendor to ensure the safety of your clients’ data, without the risks and legal challenges of managing this type of information.
8) No follow up protocol on invoices
You can be as agile as possible when it comes to invoicing your customers, but the situations in which they miss the payment deadline are unavoidable, even if you feel that you have the best client base in the world. Yes, your customers can be lazy, forgetful or simply careless when it comes to footing their bills. So, it’s up to you to remind them of their unpaid invoices regularly, either by getting in touch with them in person or having your invoicing software do this for you. It’s your money after all, but you should try to be both diplomatic and dead serious when discussing the matter with them. Having to resort to court proceedings and collection agencies is the last thing your business needs at any time.
9) Not sending receipts
Receipts are not an afterthought of an invoicing process, but rather an essential part of it. This is particularly true if you are using email for sending them, as you can save on both the hassle and physical office supplies with the help of email. Receipts allow you to track your customers better and are an excellent opportunity to showcase your additional products and services. Electronic receipts are particularly suitable for this, as all you need with them is a single promotional link generated based on the purchase which was initially made. Yet, bear in mind that you should not overdo things with this, as receipts are still a proof of payment first and a marketing opportunity second.
10) Not stating VAT correctly
This is somewhat similar to the mistake of providing insufficient or incorrect data on your invoice, but it happens just often to warrant being mentioned separately. Make sure you double check the amount of VAT on your invoice, as stating an incorrect amount makes your invoice void i.e. legally invalid. This means that clients are unable to use them to reclaim VAT, and this can ruin the trust-based relationship you are trying to build in a matter of seconds.
11) Inconsistent layout or improper branding
You’d be surprised to learn how much of the first impression these things can make with your customers. An inconsistent and poorly formatted invoice layout simply screams “lack of professionalism” to whoever is unfortunate to receive it. This can include seemingly small things such as a missing logo or poorly matched brand colors, but if you are to appear professional and trustworthy to your clients, you better use a professional invoice template that you can repeatedly send and claim your payments like a true professional you are.
12) Wrong or incomplete client details
You may think that you are immune to this, but this can happen to just about everyone. Your clients can have various persons or departments in charge of processing their invoices, so you better check if you got the right name or email address before you hit the “send” button. Thus, you’ll be able to avoid embarrassing situations in which you bill wrong customers or persons and lose your reputation with them in real time.
13) Inconsistent price scheduling
This primarily affects service-based businesses that bill per hour or act as contractors. If you are selling products, for example, price scheduling is a simpler affair in which you deal with fixed prices whose final amount is determined by the amount that is sold. Yet, if you deal with services, things get more blurry as your price is determined based on various factors, such as the amount of time involved (charging by the hour, work day etc.). A key thing to do with regard to invoicing in this case is to stay consistent with pricing, which usually comes with time & experience – you do not want your invoices to “surprise” your clients with their bottom lines.
14) Insufficient itemization
This refers to the degree to which you break down the list of items you send the invoice for. In other words, your invoices should have a clear list of each billed product or service you provided, together with additional items such as processing or flat fees, associated expenses, description of hourly rates charged etc. It really depends on what type of business you are running, but the general rule is to itemize and list everything you seek payment for in order to get your money sooner and avoid having to recheck the invoice with your customer.
15) Not sending out invoices timely
Studies have shown that invoices are more likely to be paid if they are sent right after a service is provided. You better stick with this rule of thumb when invoicing your clients and there is simply no excuse to procrastinate with this even when you have to take care of other business affairs. Just bear in mind that invoicing your client is an obligation that falls solely upon your shoulders, and the best time to do it is the second after a purchase has been made or a service provided. Time is money and with invoicing this saying should be taken quite literally.