As a small-business owner, you probably love what you do and might even say you’d do it for free if you could. But at the end of the day, you need cash flow to keep your business running.
An invoice is a bill sent to customers for goods or services you’ve provided. It describes what was sold, how much the customer owes and when and how the customer should pay. Large companies have dedicated accountants to do their invoicing, but most small-business owners have to do it themselves. And the average small business is waiting for more than $5,000 in overdue payments in any given month, according to an Intuit survey of 1,000 American small-business owners.
NerdWallet talked to accountants and invoicing professionals about how entrepreneurs can prepare invoices more efficiently and get paid faster.
1. Automate the process
If you haven’t done so already, set up software to automate your invoices. Most accounting platforms such as QuickBooks, Xero, FreshBooks and Wave Accounting include invoicing capabilities, or you can sign up for an invoice-only service like Bill.com, Hiveage and Billbooks.
“It’s time to migrate from Excel and PDFs to cloud invoicing applications,” Billbooks chief executive officer Sagar Kogekar says in an email to NerdWallet. “There are heaps of software out there, and you will save time and money if you choose one.”
Around 70% of small businesses use invoicing software, according to a 2015 survey of more than 200 small business leaders by Concur, a Bellevue, Washington, company that provides automated invoicing services and expense-management products to companies.
Using invoicing software reduces mistakes and saves money. Businesses that automate their billing processes reduce invoicing costs by 40% to 70%, according to a 2012 report by Ardent Partners, a Boston firm that researches supply management. Automation also makes invoicing faster, freeing up time for entrepreneurs to focus on running their business.
“They can spend their valuable time wearing their CFO hat instead of their manual data entry hat,” Concur product management director Jessica Staley tells NerdWallet.
2. Send written quotes
If possible, manage your customers’ expectations by sending them a written price quote before you deliver the product or service you’re offering them. A quote should include the estimated cost of the job and how you accept payments, whether with cash, credit card, check or online. Make sure the customer accepts your terms in writing before you accept the order.
“I’m a huge fan of documenting everything,” says Sara Rosenfeld, product marketing manager at Wave Accounting.
3. Set short payment terms
When you send a customer an invoice, specify the time frame for payment. The standard is typically 30 days or less, but you can choose any amount of time.
The average debtor pays two weeks late, according to a Xero analysis of more than 12 million invoices. Experts at Xero recommend setting payment terms at 13 days or less if you want to realistically get paid within 30 days. Online invoicing makes paying faster easier for customers, says Amy Vetter, Xero’s head of accounting, USA.
“People are used to paying for things online and not necessarily waiting to cut the check on Friday,” Vetter tells NerdWallet. “It’s much more acceptable to set those kinds of [short] payment terms with customers.”
4. Create a numbering system
Numbering your invoices will help you keep track of incoming payments for tax purposes. You can use letters, numbers, or a combination of the two to mark each invoice. Choose a system that works for you, but invoicing experts recommend not using “001” for your first invoice. Starting with a higher number will help your customers see you as an established expert, even if you’re a new business.
“Start with 0053, just to come across as a little bit more professional,” says Faraz Shafaghi, director of product marketing and customer engagement at FreshBooks.
5. Use polite language
Although it may seem slight, using such phrases as “please pay by (date)” and “thank you for your business” on invoices will increase your chances of getting paid, Shafaghi says. You can also send thank-you notes or emails to customers who pay on time or early.
“Remind your customer of other products and services you offer and that you’d love to serve them again,” says Mike Savory, product management manager for Sage North America, an accounting software company.
6. Send invoices promptly
Once you complete a service or ship goods to a customer, send an invoice immediately. This will help you remain at the top of the customer’s mind and set a precedent for promptness.
If possible, allow customers to pay on the spot with a mobile payment system such as Apple Pay or Square. Some invoicing systems, including Wave, Flint Mobile and QuickBooks, also let business owners accept mobile payments.
7. Follow up
If you don’t get paid immediately, send reminders to your customers about payment deadlines. It’s appropriate to send reminders a week before the payment is due, the day it’s due and every week after it’s late, says Rosenfeld, from Wave Accounting. For big-ticket items, such as a $5,000 order, it’s acceptable to send more frequent reminders.
If you’re worried about coming across as pushy with too many follow-up emails, Rosenfeld suggests using your invoicing software to set up automated payment notices to clients.
“Don’t be concerned that sending reminders or otherwise following up on unpaid invoices will be considered rude or an infringement on a relationship you’ve formed with a customer,” says Savory, of Sage North America. “You’re running a business, and the need for prompt and complete payment should be a surprise to no one.”
For more help with starting and running a small business, visit NerdWallet’s Small Business Guide.
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