As an SME, invoicing can be a total nightmare, but in order for your business to succeed and grow, a smooth cash flow should be top priority.
Even when your part of the deal is complete and you’ve fulfilled your business duties, it’s common for some clients to just not pay on time. According to BACS in 2013, the average wait for payment is around 38 days, and sometimes as long as eight working weeks. And in other cases clients simply don’t pay at all.
Late payments can be detrimental to your business and unfortunately, this is usually considered a standard part of business life. However you can do a number of things to try and prevent this from happening:
1. Implement A Payment Policy For Clients That States:
- Which methods of payment you accept
- Whether an initial deposit is required to do the work
- What penalties will be charged to late payments
- Whether the final work is provided without the payment balance
- Clarity of which date the payment is due
2. Dedicate Time For Invoicing
Being in business can get very hectic and before you know it your cash flow is out of sync and you find yourself invoicing for orders all at the same time. To avoid getting your financials in a mess, allocate a set time every week/month specifically to invoicing. You could use this time to re-track what needs to be invoiced, note payments you have received and anything else that needs to be chased. You may want to consider invoicing as soon as the work is completed; the key is to be consistent with your invoice checking.
3. Invest In Software
Invoicing software and apps are a great way to effectively manage your invoices and keep track of your business cash flow. There are plenty of cloud-based apps available to facilitate invoice management, including QuickBooks, Sage, Xero, Freshbooks, Harvest and Invoice2Go. Invoicing software provides you with step-by-step guides, templates and cash flow management, making the process a lot easier. Prices depend on the level of features you require for your business.
4. Make Reconciliation Easy
Reconciliation can cause you a big headache, especially if your client has received multiple invoices. Make sure you and your client both use unique references or invoice numbers to help you with your reconciliation. This will make the process a lot less confusing.
5. Use A Credit Checking Tool
The last thing you want is to do work for a client only to find out that they are not credible and fail to pay. This can be damaging for all businesses but especially if you’re an early stage start up with minimal funds available. Using a tool like CreditSafe or Companies House can help you understand who you are doing business with so you can decide if you should avoid them or if they’re worth taking the risk. It’s not uncommon for big established companies to end small and new businesses by refusing to pay up.
6. Calculate Currency Correctly
If you’re doing business with another country and need to invoice them in their currency, make sure you calculate the currency conversion correctly. This may seem like common sense, but many businesses still use out of date tools and methods to calculate the currency which actually means the customer can be paying too little, or too much in some cases. Use the most up to date exchange rate to avoid this. Cloud based invoicing software will allow you to bill in multiple currencies and the exchange rate will be up to date and accurate.
7. Keep It Simple
Opting for a standardised invoice layout means you spend less time designing. It also reduces the room for error as you become familiar with the invoice layout and what information is needed.
You may find using plain English and listing all the information clearly so that you and the customer understand everything, beneficial.
Check out our guide on Accounting Tips For Small Business Owners And Start-ups here.