Most business owners know that cash flow is crucial. Without a smooth cash flow, you expose your business to the problems associated with missed payments, forgotten invoices, and badly organized accounts (even with the help of a bookkeeper!). If your invoicing system isn’t arranged for success, then your business will be placed under constant pressure, as you’ll be unable to make informed decisions, and manage the complexity of your company finances.
Unpaid invoices lead to inconsistencies in your accounts, and a lack of money in the bank when it comes to paying suppliers and staff on time. So what can you do to improve your system and prompt swifter payments from clients and customers?
1. Invoice for Jobs Immediately
If you’re business runs on providing services, then you should be able to send an invoice the moment that the service has been given. Using a system like Xero can be particularly effective here, as it allows for invoices to be sent out immediately from wherever you are. In other words, you don’t have to head back to the office just to write up a receipt, you can issue a notice that shows the job has been finished, alongside your invoice, then track that invoice to ensure that it is paid. Xero even gives clients an option to click a button and pay online, to make the entire process faster.
2. Invoice in Segments for Stalled Jobs
If your business deals in trade jobs, and the client decides to put the task on hold for any amount of time, it’s important to invoice your customer for the work that you’ve done up that point. Some customers choose to stall a job indefinitely, which means that hours of work are left unpaid for – having a negative impact on your cash flow. If the stall period lasts for longer than a month without any action, make sure you are paid for what you have already done.
3. Ask for Deposits on Large Jobs
Whether you’ve been hired to perform a huge service, or one of your clients has requested a particularly large order, it’s important to get a deposit to ensure that your time and effort isn’t wasted. Larger jobs should be invoiced fifty percent at the start, and fifty percent upon completion. This ensures that if you spend an entire month focusing on one task, you’re not waiting another month to be paid for those hours. If a job is really big, you might even consider splitting the total cost into a series of payments, with clear milestones of when each invoice should be dealt with.
4. Reduce Payment Terms
A lot of businesses are still using the average “30-day” payment terms on their invoices. However, if you run a service-based business, it’s worth nothing that it’s perfectly reasonably to reduce those terms to as little as seven days. The advent of electronic payments means that there is no reason why you would need to give your client thirty days to pay you, unless you’re dealing with a huge corporation or government department that uses strict payment policies. Wherever possible, your aim should be to receive payment as soon as a job is completed. For instance, if you’re a plumber who’s just finished fixing a leaking toilet, you can invoice and take payment for that job on the spot.
5. Always Follow Up on Late Payments
Unfortunately, late payments are an issue that many businesses have to deal with at some point or another. However, you don’t have to worry about chasing up late invoices yourself if you have an automated system like Xero reminders sending out emails to your clients to remind them how much they are due to pay. If payments run really late, you might need to get a collector to chase down the money on your behalf.
6. Set Clear Payment Terms
Finally, make sure that whatever your business does, and whoever your clients are, your payment terms have been set out clearly from the moment you start working together. If you have been upfront with the person using your services about when and how you should be given payment, then you will reduce your chances of struggling with invoice-related issues. Establish rules and stick to them, and you can avoid a lot of unnecessary confusion.
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