How to Invoice in Order to Maximize Cash Flow
Looking to track your sales and increase your revenue? While there are a lot of invoice generators online, all a small business owner, freelancer or side hustler really needs is a simple invoice with a professional look to get started.
Let’s face it, cash flow can make or break your small business. You might have more than enough work coming in … but if your clients aren’t paying promptly, your bank account could end up into the red very quickly.
You don’t want your small business to fail due to something as simple as a few late-paying clients. But you might feel powerless: after all, if they’re disorganized or chronically late with payments, is there really anything you can do about it?
The good news is that your systems can make a huge difference here. By being organized and thinking ahead on your end, you make it much more likely that your cash flow will keep you in the black.
If you want to get paid on time, that means making it as easy as possible for your clients to pay you. After all, if your invoice arrives late or goes to the wrong person altogether, it’s pretty likely that you’re going to end up getting paid late too.
Here are six key steps to follow in order to ensure your invoicing procedures will maximize cash flow … rather than working against it.
Step #1: Have a Good System for Sending Invoices
If you’re running a start-up, you might think you don’t need any sort of system for sending invoices. Perhaps it’s just you and a handful of employees right now – nothing so formal as an accounts department (you might not even have a dedicated accountant or bookkeeper on staff). Or maybe it’s just you on your own getting the business off the ground.
It’s critical, though, that you have a good system for sending invoices. Otherwise, it’s all too easy for you to leave off crucial details … or even forget to invoice altogether.
Make sure you have a system for invoicing as soon as work is completed, or once a particular milestone is reached. You might also want to set a key time each week where you double-check that everything to date has been invoiced for correctly.
Don’t reinvent the wheel with every invoice, either: create a template that you can use over and over again. A bit of time invested in this upfront will save you many hours (and a lot of headaches) in the long run.
Take it Further: Revisit your system from time to time to make sure that it’s still working effectively. Something that was a great fit when you were a tiny startup with three employees might not be such a good system once you’ve got ten employees.
Step #2: Send Your Invoice to the Right Person
The person who you’re working with may well not be the person you need to invoice. With most companies, there’ll be a dedicated department (or at least an individual) handling invoices and payments – to make sure you get their name and email address.
The same goes even if you’re working with a tiny company or even an individual. They might need an invoice sent to a specific email address, for instance, particularly if you’re invoicing through PayPal. If the invoice goes to the wrong address, at a minimum, you’ll need to spend time reissuing it. It might even never get seen at all.
Clients won’t always think to let you know who to invoice – so make sure you take a moment to check. Don’t assume that your invoice will get passed on to the right person, either (your initial contact could be on vacation – or just overwhelmed by emails).
Take it Further: Ideally, when you start a job, you want to check with your client who you should invoice at the end. That way, you’re not hanging around waiting for them to get back to you before you can issue the invoice.
Step #3: Set an Appropriate Due Date
While this might seem like a pretty basic mistake, it’s surprisingly common for companies to fail to put a due date on their invoices.
If there’s no due date, that makes it very easy for your client to put off paying you! Instead, provide a clear date when payment is due. Many businesses set this as 30 days after the invoice was issued, but you could consider using a shorter time frame like 14 or 21 days. You might want to ask around to find out what’s standard in your field.
It’s up to you to choose an appropriate time frame that will suit your clients and your business needs – and this is something you should normally agree with your client before you start on the work you’re doing for them.
Take it Further: When you send an invoice, include the amount owed and the due date in the body of your email — and ideally in the subject line too. Don’t just have these in the attached invoice. That way, your client can instantly see what’s owed, when — which just might prompt them to pay a little more quickly.
Step #4: Offer Multiple Payment Options
Do you offer clients several different ways to pay you? This might seem like a small thing, but it can seriously improve your cash flow – because it means clients are more likely to be able to pay you in the way that works best for them.
Some good options are:
- Direct bank transfer – often easiest for you AND your client, so worth promoting
- Check – yes, some clients will still want to issue a check
- PayPal – this can be helpful for international clients or tiny businesses you’re working with
- Credit/debit card – this can work well if you’re in a B2C business
There may be good reasons why you don’t want to offer certain options (e.g. perhaps you’re not willing to pay the PayPal fees), but try to give clients as many ways to pay as you reasonably can.
Take it Further: If you have a preferred option that saves you time/money on your end, you may want to offer a small discount to encourage clients to use this. Also, make sure clients have all the information they’ll need for each payment method when you send your invoice itself — for instance, you might need to attach a form for them to fill in to make a credit/debit card payment, or you might include a link to where they can pay you online.
Step #5: Follow Up Unpaid Invoices Promptly
Don’t wait weeks (or worse, months) to chase late invoices – start chasing the day they’re due.
Often, all it takes is a quick reminder to get your invoice paid, so try not to let any feelings of awkwardness put you off. It takes seconds out of your day, but could well make the difference between your business staying afloat and going under.
Here’s a simple email script you can use:
I’m just checking up on our invoice [give the number or reference], which I’ve reattached here for your convenience.
We were expecting it to be paid in full by the end of yesterday. Could you let me know when payment will arrive?
If you haven’t received any response after a few days, phone to talk to the person who’ll be handling paying your invoice. (If you can’t get hold of them, try whoever’s been your main contact at the company and ask them to expedite payment of your invoice.) It’s a lot harder to ignore a call than an email.
Take it Further: You’ve probably heard the phrase “the squeaky wheel gets the grease.” It means that the person who makes the most noise about something is the one who’s likely to get what they want! If you chase up every couple of days, your invoice is definitely going to get prioritized over other outstanding payments that the client owes.
Step #6: Include a Late-Payment Penalty
Many companies charge a late fee for invoices that aren’t paid on time – 5% is fairly common, though you may want to ask around to see what’s standard practice in your industry.
A penalty can definitely help incentivize your clients to pay your invoice promptly (and to potentially prioritize it over other outstanding invoices). You may feel, though, that charging a penalty would put you into an unwanted adversarial relationship with your client.
An alternative approach is to offer a “good customer” discount for prompt payments – e.g. 5% off their next invoice.
Take it Further: You may want to introduce a late fee for some clients and not others. If someone normally pays on time, there’s probably no need to state that you’ll charge them a late fee if an invoice goes overdue — it might harm your relationship with them. But if you’re taking on a new client who you’re a little doubtful about, mentioning up-front that you charge a late fee as standard can help you get your money on time.
Getting Invoices Paid Quicker
Cash flow may not be wholly in your control, but there’s a lot you can do to help ensure that you get paid on time. It all starts with creating and sending clear invoices that include all the information your client needs. If an invoice doesn’t get paid on time, follow up politely but promptly, and you should get paid quickly.