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calendar    Mar 31, 2022

How to Get Money From Invoices When You’re a Small Business

For a business of any size, cash flow is the name of the game. You didn’t go into business to NOT make money. Prompt payments improve financial health, avoid awkward conversations and wasted time chasing overdue amounts, and make life easier for everyone.

Small business and freelancer invoicing

As a freelancer or small business owner, you rely on invoices being paid on time so that your own expenses can be covered without delays. Fortunately, there are many invoicing and payment options available to make this happen easily.

Electronic invoicing offers considerable advantages over the paper invoices of days gone by. Aside from the time and energy involved in the issuing of a manual invoice, the potential for error is huge, and operational costs are high.

In addition to being efficient and accurate, electronic invoicing is also incredibly easy. Bookkeeping software often has an integrated invoicing option, and there are user-friendly templates available in most office software packages. A professional-looking invoice demands a professional response from the recipient, and this can be done without any need for advanced design skills.

Designing a professional-looking invoice

Designing a professional-looking invoice

There’s a standard list of information that needs to go on an invoice, and displaying this clearly generally means you get paid faster. If an invoice is difficult to understand or information is hard to find, delays are more likely. Invoicing software provides invoice templates you can customize, as well as follow up options that suit your needs.

A well-designed header shows your customer that you’re a business that means business! Your company name, or full name if you’re self-employed, goes at the top. Next, your contact information (mailing address, phone number, email address, website), all in a professional and easy to read font which supports your brand identity. Steer away from fonts that distract from your message, a quick internet search can provide endless information on the psychology of font choices. If you have a logo, it should be here too.

In addition to font and logo design choices, the color of your invoice can play a part in how seriously you are taken (and how much of a priority paying you will be). There is a great deal of research on color theory in branding and marketing, which of course also applies to invoicing. Using a friendly kelly green to highlight a payment that is due, and a bold red for an overdue payment, draws your client’s eye to the important information on the page. Color is also shown to aid in recall, and you want your invoice to be fresh in your client’s memory.

Your client’s information should also be at the top of the invoice; add as much information as you have, even if that’s only your client’s name and email address. These details help keep your invoices in order and makes it significantly easier to find an individual invoice should you need to.

Numbering invoices in a way that works for your business is another way to keep track of individual customers’ accounts. Perhaps you’ll start at 00001. Alternatively, maybe you’ll have a prefix that links the invoice number to the client (for example Joe’s Concrete may have JC0001). Imagine you need to pull an invoice for a particular client—what organizational system is going to help you do this quickly and efficiently?

Other information you’ll be documenting is a breakdown of the goods or services the client is being charged for. The date, services/goods provided, quantity, rates, and hours being billed for (in the case of a service being provided). Then a subtotal, taxes/delivery charges/fees, payment deadline, and finally the grand total. Your client, and you, can see at a glance exactly what they’re paying for. Clarity is key.

Payment methods

A ‘pay now’ button embedded into your electronic invoice is a sure-fire way to be paid immediately. It’s quick, it’s convenient, and it’s now possible regardless of the amount of the invoice.

Credit card payments, Debit, PayPal, Google Pay, Apple Pay, bank transfer, ach—these are online payment technologies that you should absolutely be harnessing in your accounts receivable department. Payment by cash is slow, and it’s vulnerable to theft, loss, and fraud. Checks are similar—they can be lost, they can be forged. Electronic payments are immediate and secure, and they integrate with your accounting software, making reconciling invoices seamless. Electronic payments (especially when sent via online invoicing) are so incredibly fast and easy. And all people, your clients included, like things that make their lives less complicated.

If clients want to pay invoices in person, there are still many options to ditch the cash and checks and go digital, even as a small business. Mobile payment process platforms provide the flexibility to receive payment without requiring an expensive and complicated POS system. Even an on-site contractor can process payments on a worksite or in a client’s home. Apps, including Stripe and Square, allow a small device to be attached to your smartphone, which then processes a payment via the app on your phone. Yes, there are transaction fees, but when compared with the time spent chasing down delinquent invoices, these platforms most definitely earn their keep.

Absolutely keep the option to pay via check or wire transfer, but make it far more attractive to your clients to choose the quick, simple, secure, digital option.

Payment terms, past due invoices, and unpaid invoices

By setting payment terms out clearly on your invoices, you remove any ambiguity about when their payment is due and the consequences for late payment. If you set these terms out in the initial stages, when finalizing a contract, you’re already a step ahead in being paid promptly.

There are many considerations to make when defining payment terms. These will differ according to the size of the job, your familiarity and trust with the client, and the grand total for the work being done.

Consider a project that will take months from beginning to end. A deposit paid upfront provides you with the immediate cash flow to cover costs associated with the job, as well as keeping up with your other business expenses. It also allows the client to spread out what may be a large outgoing expense over a number of days or months.

In this example, options like automatic payments could simplify things for both parties. The client has a portion of the amount owing charged to their credit card or debit card each month and doesn’t have to lift a finger to make it happen. You know that on the same day each month, that sum of money will be coming into your business. In your contract, there should be a disclaimer that if a payment is missed, the work will not continue.

Automatic payments can also be a huge asset in businesses that provide goods or services to clients on a regular basis, even if the payments aren’t huge. Stripe and Paypal both offer this service, the payments are seamlessly integrated into your accounting software. An automated email reminds them their monthly payment is about to happen, and the ease of the transaction is attractive to everyone involved.

Payment terms ideally are up to the discretion of the business. Many invoicing systems offer 30, 45, or 60-day terms and payment plans. If you require the invoice to be paid upon receipt, state that clearly on the invoice. Whatever your terms are, have them boldly stated—then there’s no way they can claim to have been missed.

However, in some industries (and almost always when seeking out government contracts) net terms that offer 30, 60, and even 90 day terms are required if you want to close the deal. For many business owners and entrepreneurs, waiting this long to get paid would be devastating to the balance sheet.

That’s where a different solution is required. Resolve is a complete B2B credit management and net terms solution. Working with Resolve gives your business access to discrete credit checks on customers, reliable recommendations on which net terms and credit limit to offer in each situation, invoicing that follows best practices, and a company-branded payment platform that makes it easy for customers to pay you when their invoice is due.

With every approved customer, Resolve pays out up to 90% of the total invoice within one day. This means that your business can offer competitive net terms while still receiving prompt payments (and without needing alternatives like invoice factoring).

Knowing a little about your clients’ payment cycles will make a huge difference to the ease of invoicing and receiving payment; if you can sync with their payment runs, you will get paid faster. If, for example, you are dealing with a business that processes invoices monthly, by dating your invoice March 31 rather than April 1, you bump your invoice into its April invoice payment run rather than having to wait until May. This is especially true with large businesses. A little invoicing process strategy goes a long way.

Early payment discount

Make early payment an attractive option

People love to feel like they’re getting a great deal, business owners included. Offering even a small discount on payments received within, say, ten days, will motivate your clients to click the link and make payment promptly. The client feels valued, you have money in your bank account, and you are more likely to see their repeat business.

Building relationships with your clients is yet another way to incentivize quick payment of invoices. Send an email, stop by for a visit. Again, they feel valued and are more likely to prioritize you in an inbox filled with payment requests or payment reminders.

Late fees and collections agencies to collect unpaid invoices If early payment incentives are the carrot, collections agencies (or the threat of them) are the stick. Include your late fee policies on your invoices in the payment terms section and discuss them with clients from the outset.

When the due date arrives and payment has not been made, send a firm but friendly email to the client reminding them the payment is past due, and a refresher of the payment methods you accept. You don’t want to sabotage your relationship with the client by coming down too hard, but you do need to be clear about their outstanding invoices. A pleasant phone call with a friendly reminder is a good way to connect. You can ask if there’s an issue with making the payment, and see if you’re able to work together to solve it.

Contacting the finance/accounts payable department directly may yield better results in cases of non-payment or overdue invoices when other avenues have failed. It also eliminates awkward conversations with your usual point of contact. The billing department is better equipped to give you a straight answer about when you’re likely to be paid and let you know if there are any issues preventing or delaying payment. This is also where having a separate email address for accounts, even in a very small business, is handy. Keeping the friendly relationship-building emails separate from the ‘your account is in arrears, pay us immediately’ emails and demand letters is a good tactic.

Hiring a debt collection agency or debt collector is really the last step (aside from legal action and small claims court—something you generally want to avoid). Collections agencies are great at collecting delinquent payments, but for a price—often up to 50% of the amount owed. If the sum is substantial, this could be a viable option to recoup lost cash flow.

Invoice well, get paid faster, and have fewer overdue invoices

Clear and well-designed invoices, convenient payment options, and clear communication are the key to prompt payments and, subsequently, steady cash flow and growth for your business. Harness the advances in invoicing and payment technology available to you, then enjoy the benefits they bring.

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