What Your Invoicing Habits Say About You as a Small-Business Owner
If you're like most small-business owners and freelancers, then you dread when it's time to invoice your clients. The thing is, it's one of the most important business tasks that you're responsible for. Your invoicing habits could be holding you back from getting you paid.
However, invoicing is more than just getting paid for the goods or services that you provided. It's also a way to build stronger relationships with your existing clients.
Demonstrating your professionalism in the way you invoice and your invoicing timeliness will keep your cash flow consistent.
In your invoice, thank your client for using your services, this puts them in a receptive attitude. By thanking them you are also setting the stage for up selling additional products or services.
This is your business and having good invoicing habits is important. You are projecting the image of your business. Being perceived in a negative light sets up several mental processes in the mind of your client.
These powerful images are difficult to undo. If you have an unprofessional attitude, or show a sense of carelessness -- this leaks out. How can you expect them to pay their invoice on-time?
What you are looking for is up selling other services, having them as a repeat customer and you want them to refer you to others. All of these pluses can quickly be lost if you pay little to zero attention to your invoicing.
Let's address the freelancer, as they are marching forward as one of the largest sectors in business. What do your invoicing habits say about you as a freelancer? A freelancer is a small-business owner.
Here's a look at eight of the most common billing habits small-business owners have and how these influence billing.
1. You require a down payment.
Asking for a down payment -- whether it's broken-up 50/50 or into thirds -- is a better common practice among business owners of all-sizes. It indicates to the client that you're committed, reliable and trustworthy.
Requiring a down payment signals that you are a professional who takes their job seriously and knows how to operate their business.
After all, there are expenses that you're responsible for during the course of the project. You don't want to take the chance of getting stiffed monetarily on an entire project.
Since you're now indebted to the client, they can rest assured that you're going to deliver quality work by the agreed-upon deadline.
In short, a down payment protects both you and the client.
2. You ask for the full payment before starting a project.
There are some business owners that request the payment in full prior to starting a new project. This is generally when working with exclusive, high-end clients.
While not unheard of, it's still a bold move for the average business owner. If this client or customer is working with you for the first time -- well, don't do this. Really. Don't.
It's a pretty obvious signal that you don't trust them. If you don't trust them, then how can they trust you?
Unless this is the arrangement you've had from the start or have built a trusting relationship, you're better off asking for a down payment instead of the full amount in advance when working with customers for the first time.
3. You don't have a written agreement.
In an ideal world you wouldn't need a written agreement. Gone are the good old days where "the ole handshake is my bond." Some of those myths cannot be confirmed -- if they worked at all -- but that's not the case today.
Working with a client without a written agreement shows that you're naively trusting and you may be easy to take advantage of. A twenty page contract for a post -- well that moves the needle in a different direction.
As Chalmers Brown, co-founder and CTO of Due, explains:
"Whether it's the economy or just dealing with a rotten individual, you can't rely strictly on trust. To protect yourself, and your business, you should have your clients sign a contract so that they can't bail on you when the bill arrives. It doesn't have to be complicated. Just keep it simple by agreeing on the scope of the work and payment terms."
4. You bill them immediately after completing a project.
It's common practice to invoice a customer once you've completed a project for them or shipped a product. This ensures that you won't forget to bill them later.
One problem that creeps up is that your invoicing cycle may not sync with their billing cycle. For example, if they're billing is on the first of the month, and you invoice them on the 7th. In this situation you're going to have to wait at least three weeks until that bill is paid.
Some clients are suspicious of invoices that come in immediately following the completion of a project. Maybe they believe that you're overcharging them. Maybe they want to check out your work more thoroughly.
Invoicing tip: If you have a written agreement in place then that should determine when you're going to invoice the client. Prior to starting work for them, find out when they prefer to pay their bills. Aligning your billing cycle with their payment cycle just makes sense.
Always send them an itemized breakdown of the products, services or expenses. The last thing you want is your invoice to be held up because they are questioning if you're overcharging them.
5. Bad invoicing habits -- you forget to bill.
One of the worst mistakes that a business owner can do is to forget to bill their customers. It shows that you're unprofessional and could care less if you get paid or not. It goes without saying, it's also detrimental to your cash flow.
Even worse? When you do finally get around to invoicing your customers will put off paying you. Your client believes that it wasn't that big of a deal for you in the first place.
As a general rule, never put off your invoicing. The longer you wait, the less likely you're going to get paid.
6. You never follow up.
Let's say that you have made invoicing a priority, but the client hasn't paid the bill for one reason or another. What do you do?
It's your responsibility to chase down that payment. If not, then the client could believe that the payment isn't a concern for you or you're a pushover.
While you don't have to be aggressive or mean-spirited, you do have to take the initiative when it comes to late-paying clients.
Follow-up with an email or phone call to see what's going on. There could actually be a reasonable reason why they didn't pay your bill. If they're unresponsive, you may have to take additional measures.
Your last resort would be to send a letter from your attorney or sending the bill to collections. Hopefully it won't come to this.
Again, having an agreement will protect you from non-paying clients.
7. You follow up too much.
On the flip-side, if you follow-up too much, you may come across as desperate. While you definitely need to follow-up on unpaid invoices, nagging the client every day seems to give them power. They will use your inferred desperation against you.
For instance, they may offer you a couple bucks here and there, but will never actually pay the bill in full. Remember, any future agreements with "this type" get a down payment or present a price increase.
8. You rely too much on automation.
Automation is a truly a beautiful feature -- particularly when it comes to invoicing. With automation you can set-up recurring payments, notify clients of upcoming payments and "ping" them until they've made a past due payment.
The problem is that if you rely too much on automation it could show customers that you're lazy and not personable.
Your invoicing software can "ping" a client all they want. But what if they've been in the hospital due to a medical emergency or just had a serious financial setback? Do you think all the pings in the world are going to make them pay your invoice, then?
In these cases, you have to reach out and find the cause of what's going on. If it's unusual behavior for the client, something is wrong, reach out.
Yes, automation has made life a whole lot easier. But, it's still your responsibility to make sure that your invoices are paid on-time.
Part of that obligation is communicating personally with your clients from time-to-time.