Once you've set your credit policy, it's important to stick to it and do your part to ensure prompt payment. The cornerstone of collecting accounts receivable on time is making sure invoices go out promptly and accurately. If you sell a product, get the invoice out to the customer the same time the shipment goes out. If you're in a service industry, track your billable hours daily or weekly, and bill as often as your contract or agreement with the client permits. The sooner the invoice is in the mail, the sooner you get paid.
To eliminate any possibility of confusion, your invoice should contain several key pieces of information. First, make sure you date it accurately, and clearly state when payment is due, as well as any penalties for late payment. Also specify any discounts, such as discounts for payment in 15 days or for payment in cash.
Each invoice should give a clear and accurate description of the goods or services the customer received. Inventory code numbers may make sense to your computer system, but they don't mean much to the customer unless they are accompanied by an item description.
It's also important to use sequentially numbered invoices. This helps make things easier when you need to discuss a particular invoice with a customer and also makes it easier for your employees to keep track of invoices.
Before sending out an invoice, call the customer to ensure the price is correct, and check to make sure prices on invoices match those on purchase orders and/or contracts.
Know the industry norms when setting your payment schedules. While 30 days is the norm in most industries, in others, 45- or 60-day payment cycles are typical. Learn your customers' payment practices, too. If they pay only once a month, for instance, make sure your invoice gets to them in plenty of time to hit that payment cycle. Also keep on top of industry trends and economic ups and downs that could affect customers' ability to pay.
Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press