You need to get paid right? Well, then you’re going to have to learn how to make invoices if you’re a small business. Preparing an invoice is the first step in generating the income a business needs to run on a day-to-day basis.
But there are certain rules that you have to follow; design, timing, etc. Your cash flow and your accountant will thank you.
The worst nightmare any business owner can have is to have a slew of invoices going unpaid – the average small business had around $5,000 in overdue payments, PER MONTH. That’s $5,000 not going into the bank, not paying off your bills and other expenses, and ultimately not going into your pocket.
For that reason, it is important to implement certain good habits and following a clear process to help you to collect those invoices.
So, how to make invoices if you’re a small business? Take the first step and follow the guidelines below.
The Do’s of how to make invoices:
Make sure your invoice design provides clarity
Your business’s invoice is an interface with your customers. It needs to show your brand – and that’s not just your logo. Don’t get ‘creative’ with your invoice design, clarity is key, don’t frustrate your customers with difficult-to-decipher layouts. Information should be clear and therefore easier to understand.
Using invoicing software allows you to keep everything consistent, there are many established brands out there; Sage, Quickbooks, and the like as well as new startups such as Xero, and some great FREE invoicing software such as Invoicely, Freshbooks, and Odoo.
Using any one of these invoicing solutions allows you to include your own personalized branding while ensuring all of the necessary information is laid out clearly on a custom invoice.
Get the dates straight
The date of the invoice should be clearly visible, right there at the top with your logo and contact information. Make it prominent – after all, you’re sending a message about when the payment is due. If you have the need to; make sure that the completion of any work or delivery is a part of the invoice item descriptions.
Make sure your invoice is detailed
There’s an old saying, the acronym of which is KIS; Keep it Simple. In the case of an invoice, less is more, you’re not writing the next Great American novel. The most important rule is to itemize items, fees, expenses, costs, and relevant dates, thus reducing any disagreements down the road.
Avoid any surprises
Make sure your customers know ahead of time when an invoice will be sent. Clearly spell out the charges and itemizations to avoid confusion. Your business invoice should match your original estimate and contract, which conveys predictability to your customers. If the invoice total exceeds the estimates or the agreed amount, or there are new charges, explain the difference to customers before you send the invoice.
Follow up on overdue invoices and payments
You know how to make invoices, you sent some out. You’ve worked hard for the customer so if you haven’t heard from them after issuing an invoice then you need to follow up with payment reminders. It’s possible that if you mailed an invoice that it’s been lost, even an emailed invoice can end up in the customer’s spam folder. Make sure that an invoice has been received before you start tracking the days or weeks until the due date. And on that subject; make sure that the due date for the payment is clearly stated on the invoice, as prominently as you need to.
Clear payment terms with a deadline are essential; it gives you a basis for follow-up in case of nonpayment. If you don’t clearly state the expected payment date, it’s easy for customers to put your invoice at the bottom of their bills pile. When the due date has arrived with no payment received, resend your invoice and add a note that it is past due. Small business invoicing software can assist by automating reminder emails.
“It is not the strongest of the species that survive, nor the most intelligent, but the ones with paid invoices”
Charles Darwin – possibly.
What not to do
Don’t delay
ALWAYS stick to the agreed-upon milestones and never invoice before that has been completed. Also never invoice too late after wrapping up work. Always agree on a schedule for invoicing so that it’s not an unwelcome surprise. Invoicing on an agreed date shows professionalism and confidence.
Don’t be shy about sending business invoices
The last thing you need to be is shy, yes it can seem awkward for some people at first. Show your customers that you value your own work, with a belief in the goods or services you’ve delivered. The first step in the process was winning the business because the customer has asked for your goods or services, the second was you delivering and the final step is the invoice that shows that the work has a real-dollar value.
What to include on an invoice
Every invoice should have the following information:
Your business’s contact information
Include your or your bookkeepers or other accounting contact information, including contact persons’ full contact information. That way, if customers have questions about invoices, and many will do, they can quickly reach out to the right person.
Invoice number
A unique number such as #107-2021 – helps you keep track of how many invoices you’ve sent a client. Also, in the event an invoice goes unpaid, it’s easier to track down which one by searching for the number. Numbering invoices can help your customer find missing invoices and payments as well. And, come tax time, numbered invoices will help you avoid missed income data. Again, this helps in coming across as a professional business.
Recipient contact info
Whenever possible, address your invoice to a specific person, including name, email address, and phone number. Agree with the customer who that person is going to be beforehand. In the event of nonpayment, you can follow up with a real person instead of a department. Also, make sure to have a backup in case the person is ‘on vacation’.
Business tax ID
Your customer may need your Tax Identification Number, or TIN, for their accounting purposes. Make sure you provide it proactively to minimize a late payment.
“When the going gets tough, the tough get invoicing”
Some Kennedy.
Invoice date
Clear and obvious payment terms and dates for the purchase or service, for the invoice sent and the payment due, will keep everything clear for your customer and let them know how much time has passed between invoicing and payment.
Itemized Billing
It is important that you are clear about what it is that you’re charging; descriptions, dates, transportation expenses, etc. This gives the customer a full breakdown of what they are paying for and how you arrived at the total. It’ll also make it easier for your accountant to reference invoices at a later date.
Include details of what you are charging, noting the differences between product costs, supply costs, hourly charges, or transportation expenses. Include details like descriptions, dates, and locations associated with charges, as appropriate. This will make it clear to the customer what they are paying for and how you arrived at the total and will also make it easier for you or your accountant to reference invoices at a later date.
“Total Due” line
Make sure this line is hard to miss – make the font size larger or use bold type for emphasis.
Tax line
If your business has to pay local or sales taxes on goods and services, and it probably does, break out these amounts on a separate line and include the tax rate percentage.
Preferred payment method
If you have a particular payment method preference then you need to make this clear. Credit cards, check ACH payments, or online payment services such as PayPal, whichever it is need to be clear that that’s how you want to be paid.
Providing an electronic invoicing option for your customer to pay online with a credit card is a great way to get paid quickly while the invoice is still top of mind.
If you’re considering using an invoicing service to accept credit card payments, make sure to check any fees you may incur and how often. Research and compare all options before choosing a service to work with.
A personal touch
It’s never a bad idea to thank customers for the opportunity to do business with them. You can also add a message about contacting you if they have questions or concerns. Be kind and your customers will stay loyal to you.
“I think, therefore I invoice”
René Descartes – allegedly.
How to generate and send business invoices
Do you wonder if you should send a paper invoice, or send the invoice electronically with online invoicing? The easiest option is to generate invoices using invoicing software.
Printing or emailing manual invoices created in word processing software comes with many downsides; lack of expense tracking and reporting, manual calculations.
Printing also increases the waiting time for check or cash payments. When you generate electronic invoices – especially if records are stored online in the cloud – the files are easy for you or anyone else with access to the system to refer to when needed. If you have or are going to have an accountant it is good to remember that many accountants have a preference so speak to them first.
Digital invoicing tools can integrate with financial, accounting, inventory, and other software tools, making it easier to create, access, and track your full business processes, as well as collect the necessary information. Again, speak to your accountant.
Digital invoicing tools are good in that they offer invoice templates that you can easily customize for your business. This ensures that your invoices maintain a consistent and professional look and represent your brand well.
Also, since payments are processed electronically, there’s less physical cash to manage, which is easier and safer for your business. Finally, you’ll have fewer billing processes to handle and greater visibility into your company’s cash flow.
Whatever method you choose, avoid simply dropping a list of charges in an email. It’s not a very professional presentation, and it’s too easy for information to get chopped up or lost as the email gets forwarded to the right person for payment.
Don’t make assumptions about your customers
Don’t assume that they are happy simply because they paid your invoice. Right after receiving payment is the right time to reach out with a thank you or an offer to do future work. It’s simply good manners.
Are they expecting your invoice? Only send invoices when customers acknowledge that they’ve received all goods and services, or when an agreed-upon milestone has been reached, again this should be clearly stated on the invoice.
Have they received the invoice? If you haven’t enabled confirmation of receipt, or heard from your customer, check-in.
Will they pay promptly? It’s up to you to make payment terms and deadlines crystal clear.
They expect you to raise prices occasionally. Tell customers before invoicing if there are higher charges than expected, or that they’ve seen in the past from your business.
A professional invoice is good for your business’s health
Business invoicing isn’t just paperwork. It’s vital to the health of your business since your invoicing practices have a direct impact on cash flow. Consider investing in beneficial invoicing tools, that will help you follow the best practices above, and you should see a steady increase in your business funds – money you can use to grow your business.