Small Business Invoicing – Close Gaps in your Invoicing to Level Up Your Cash Flow Management

Posted 10 February by Blaine Bertsch in Accounting, Entrepreneur, Small Business

Some of the toughest parts of business ownership have nothing to do with the products you make or the people you work with – instead, it’s administrative and process issues like invoicing that can affect your business so negatively that it can lead to disaster if you’re not careful.

While lots of articles, including some of ours, cover the delicate process of payment negotiations, the step after that is one that no one seems to talk much about – invoicing in such a way that you get paid on time.

Invoicing – What’s the Big Deal?

If you’re starting out, maybe not too big of a deal – if you’re using personal funds to shore up your business, it may appear easier to cover the shortfall left by an unpaid invoice rather than set up a whole bunch of processes to try an address the issue.

Everyone worries about angering new customers to the point that it affects your bottom line. If you don’t learn fast to keep on top of your receivables, however, you’ll continually find that you’ve got cash flow shortages that become greater as time goes by.

On the contrary, if you take the time to get your house in order right from the start, you set daily habits that can help you maintain your cash flow, not get pushed around by clients, and allow you to operate from a position of strength as you manage your growing business.

Let’s take a look at 4 common small business invoicing problems that affect even seasoned business owners – bridging these gaps will move you into a stronger strategic position starting almost instantly.

Problem #1 – Client does not pay on time

My clients pay – but never what I would consider to be ‘on time’. This is maddening from a small business perspective and can feel insulting on a personal level?

Key Strategies for Getting Clients to Pay on Time:

Get invoices out on time – even when you’re busy:

I know – business invoicing is the last thing you want to do after a busy day/week/month or project. However, there is no better way to show clients that you take your payment terms seriously than illustrating this at the outset with a timely, clear and attractive looking bill. Ensure that your invoice removes as many barriers to payment as possible:

    • Is the invoice number or PLO clear and visible?

    • Is the dues date clearly stated?

    • Are ways to pay clear and accessible?

    • Is the invoice addressed to a person?

Inform immediately if the account is overdue:

If you’ve sent out an invoice and received no payment, don’t hesitate to pick up the phone and place a polite phone call to the financial person at your client’s office. Don’t get combative – it’s far more effective to learn what went awry in your invoicing process. Ask, for example:

    • Is there someone specific that deals with accounts payable in the office?

    • What does their process look like?

    • What does their timeline look like?

    • Is there anything you can do in the future to ensure payment within the terms set by the invoice?

Contact the right person:

Going back to the previous point, establishing regular and friendly communication with the right person in your clients’ office will go a long way toward proactively and quickly solving business invoicing hitches and disputes. While this may seem like time spent unnecessarily to build a relationship, it’ll pay off at some point, guaranteed.

Problem #2 – Client pays the wrong amount or for the wrong service

I’ve had some clients pay me the wrong amount, or for the wrong services on what I thought was a clear business invoice. This one doesn’t happen too often, but when it does, it’s indicative that something is seriously amiss in your business invoicing process. Take immediate action to get to the bottom of this problem. -Ed.

Key Strategies for Getting Clients to Pay The Right Amount

Communicate with your clients: Your clients should have a great idea of what services they’ve incurred from you, and the rate or fee that you charge. Ensure that they’re not unclear about what is owed, or your rate, or the time you’ve spent on their project so far.

Contact the right person:

As in problem 1, establishing regular and friendly communication with the right person is going to speed up invoice resolution. Pick up the phone and assertively but politely ask to speak to the person who manages AP/AR in your clients’ office. A rapport with this person will shed light on their processes as well as any hurdles they encountered in paying you out.

Create a good looking easy to understand invoice:

This problem sounds to me like there might be some unclarity on the invoice itself. Make sure you’re using a template for your invoice that has all the information clearly and attractively displayed, in terms that are easy for your client to understand.

When beginning a project, it makes good sense to speak with your client’s AP/AR person, accountant, or bookkeeper in order to determine what information they view as critical to their internal processes – this will result in quicker and more accurate payment.

Problem #3 – Client is delinquent

Project’s done, invoice sent, then radio silence. I can’t get more business if I don’t get paid first!

We hear about this one a lot, actually. Small businesses can ill-afford to have an invoice go much past the due date, but unfortunately, it’s a lesson that some forget once their business grows.

Key Strategies for Avoiding Delinquent Payments

Divide payments across invoices:

The best way to avoid this with your clients is to invoice often – either at regular intervals for an ongoing contact, or at milestones for a project. We recommend at least five – yes five! invoices on a project. Read on to see our method and why it works to bring your small business invoicing to a new level of excellence.

Have the second-to-last invoice be the one that takes care of 90% of the balance owed:

Above, we talked about the multiple-invoice strategy for projects – here’s what it looks like.

Invoice a portion up-front to ensure you are not out-of pocket on hard expenses. Then invoice at every key milestone, for instance when your’ve completed approximately a 20% of the project work. Ditto at the halfway mark and three-quarter mark.

Invoice nearly all the remaining amount due another large amount at final delivery, but keep a very small amount yet to be invoiced for their final approval. This can seem like a minor distinction but it can turn out to be a big deal. If you have a large, outstanding amount but require final approval to invoice, you can be waiting a long time to bill your customer.

Delays frequently happen at this final stage when people are unavailable to review and issue final approval, or tiny changes and additions come up at the last minute. By issuing an invoice for the bulk amount upon delivery of the completed product, you can ensure that you’re paid quicker and have the majority of the revenue in hand. Now you just wait for final approval to issue the last, small outstanding amount when everything is approved and signed off on your clients end.

At worst, you should only be out a minor amount for the last payment if it becomes delinquent.

NOTE: If you have concerns about receiving your final payments, based on past behaviour of your customer, you could request (subtly demand) payment of that large, second to last ‘delivery payment’ upon delivery so that you are assured to have nearly all of your money in-hand.

Problem #4 – Time management makes small business invoicing tough

“I really struggle with day-to-day time management in my small shop – I know I should invoice, but honestly it’s not what I feel like doing at 11pm on a Friday night.”

Key Strategies for Better Invoicing

Keep detailed records:

The more detailed your records are on a project or retainer, the more easily and quickly you’ll be able to pull data together for an evidence-based invoice. New to this kind of thing? Try Toggl or Harvest to start project tracking and reporting.

Create a simple and clear invoice template:

Save a great invoice template somewhere handy on your work computer; when the time comes, it should be straightforward to enter billables and comments, and have the invoice auto-sum the information that you have entered.

Problem #5 – Scope creep

“My client thought I was including services (for free) and now is disputing my invoice – I guess we didn’t discuss the project in enough detail.”

Key Strategies to Get Paid for Scope Creep

Detailed Terms in Your Contract:

The absolutely number one way to address unexpected additions and changes to a project is to have significant detail in your contract of exactly what you will provide, when and what happens if they change their mind.

So, the key is in how you address scope creep at the outset – with a clear contract, you’ve eliminated 95% of the grey area that comes along at invoicing time. Consider hiring a lawyer to review your contract and insert some necessary ‘blanket lingo’ in that will ensure you get paid at fair rate for tasks that fall outside the project scope.

Invoice quickly, clearly, and accurately:

Make sure you’re using a standard invoice that has all the information clearly outlined with terms that your clients understand. Make sure any items that may be disputed are stated clearly – often you’ll have less difficulty getting paid for out of scope work that is clearly defined.

Expense out:

Ensure that your contract includes a list of which costs you will expense for immediately. Doing so will preserve your own cash flow and save you a headache when you invoice, but also empower your client to stay ‘tuned in’ to the project’s process.

Lawyering up:

Disputing a payment issue that revolves around scope creep stinks – full stop. Realize however that it’s not often done on purpose and can be an important part of soliciting additional work for your services.

Remember too that your client may not have anyone remotely suitable to do the tasks that they’re asking you to complete out-of-scope – you are the best candidate and working outside your scope can fuel new personal and professional growth for you.

A review of these problems submitted by our readers make it clear that billing is a deeply personal issue – even as we try to maintain professionalism with delinquent clients. I hope that you’ll see that having clients pay on time is largely a matter of offering the correct incentives to clients to have them pay at appropriate points in the job cycle.

Dryrun can help you take control of your cash flow, understand your business and plan for growth.

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