12 Billing Mistakes That Make It Harder for Your Business to Get Paid A little effort upfront to get your invoices right often results in much more reliable cash flow.
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Most business owners regard billing as a tedious and time-consuming task. However, it's an essential part of the business. Without money coming in, you can't pay employees or purchase vital products and services that keep your business running.
Simple errors like forgetting to put your address on your invoice will increase how long it takes for a customer to pay a bill. Oversights like that can end up costing big money. Here are 12 common steps people forget when billing their customers.
1. Sign a contract.
As Richard Branson stated on OPEN Forum, "In an ideal world, a handshake would be all that an entrepreneur or executive needs to seal a deal with a business partner." However, business conditions can quickly change, whether due to the economy or consumer tastes. If that happened and you didn't have a contract, where would that leave you and your business?
To avoid any problems, create a simple contract and have it signed so both parties are on the same page. As Branson notes, "By all means, shake hands on a deal, but then make sure to ask your lawyers to record the details. It could be the best bill you ever pay!"
2. Establish payment terms.
Besides securing a contract, make sure that you have clearly defined payment terms on your bill. Include everything from due dates to what will happen if the invoice is not paid on time, such as a sending it to a collection agency after a specific amount of time.
3. Include specific details.
When billing customers you also want to make sure that you are as detailed as possible. For example, specify exactly what you are billing the customer for and who you are sending the bill to. This will ensure the customer knows exactly what they are being charged for and that it gets into the hands of the right individuals.
Also, remember to find if your customer requires an Employer Identification Number or purchase order. Being detailed makes you look professional, and increases your chances of getting paid on time.
4. Invoice promptly.
Always send out an invoice when the job is completed. The longer you wait to send out an invoice, the longer it will take to get paid. Here is a complex guide on how to get paid online where I go into every aspect of contracts, billing and getting paid for all the work you're doing.
We've found that when you invoice the day the job is completed (rather than waiting two-plus weeks for your billing cycle) you are almost 1.5x more likely to get paid. This is based on 250,000 invoices that were invoiced and paid. Bottom line, invoice fast.
5. Use a numbering system.
A numbering system will make it easier to keep track and manage all of your invoices bills, like which customers have paid and which ones have not. Additionally, by using a numbering system, it will be easy to locate a bill on the off chance you get audited.
6. Double-check information.
Take the couple of minutes to review the information on your bill. Check the bill amount, make sure it gets sent to the right person and ensure it includes proper information like business name, location and bank account.
I can't tell you how many times invoices haven't been paid or billing has been held up because one little number was off. I recommend triple checking everything before sending.
7. Charge interest fees.
Including interest fees creates a sense of urgency in your customers because they don't; pay the bill when it's due they'll be charged a fee. When including interest fees, be upfront on how much the interest fees will be and when exactly it will apply. I haven't pulled this one out except to extremely deadbeat clients.
8. Manage cash flow.
Keep your cash flow in order by always staying on-top of which bills have been sent, which have been paid and which are pending. You can use accounting software and tools to help you effectively manage cash flow to prevent any financial problems.
9. Not including incentives.
Give your customers a reason to pay you on time or, even better, ahead of schedule. Offer a discount if they pay early. You could also consider using gift cards, credits or future discounts as incentives for customers to pay early.
10. Failing to follow-up.
By keeping track of which bills have been paid and which haven't you can follow-up with customers who have yet to pay. Don't hesitate to send a friendly reminder to the customer the moment that the bill is past due.
11. Offer payment options.
Make it easy for your customers to pay by providing a number of payment options. For example, instead of accepting checks only, use an electronic billing or invoicing service to accept payment and keep track of everything for you. Here are the top 10 invoicing services for small businesses.
12. Not using etiquette.
According to FreshBooks, "A simple "please pay your invoice within' or "thank you for your business' can increase the percentage of invoices that are paid by more than 5 per cent!" In short, don't forget to use your manners when billing customers.
Getting paid on time starts with making sure to start off on the right foot.