Your newly formed business may have a fantastic product and high-value customers, however if your clients don’t pay for your product and services then your business could soon fail. Managing your invoicing is therefore a crucial part of running your business. To benefit your cashflow you must have full understanding of what is required to be included in an invoice and common billing errors.
As a business owner, the most ideal scenario would be instant payment by their consumers, however, often payments can be delayed due to incomplete or incorrect invoices. Recently, Sage Business Cloud Accounting conducted a study which showed that approximately 17% of all payments to small businesses are late and these companies, on average, spend 15 days per annum chasing overdue invoices and late payments.
The following are the 13 fundamental elements that are compulsory on an invoice for it to meet VAT regulations:
- Unique invoice number
- Your business name and address
- Your VAT number
- Date
- The tax point (or “time of supply”)
- Customers’ names or trading names and addresses
- Description of the goods/services
- The amount excluding VAT
- Total amount of VAT
- Price per item, excluding VAT
- Quantity of each type of item
- Rate of VAT charged per item
- The total of these values separately
Invoices that contain all of the above elements can still end up difficult to understand and complicated due to other oversights.
The most common mistakes are:
Spelling and formatting errors
You are giving clients a simple and easy excuse for delayed or non-payments if there are spelling mistakes or a confusing format. In order to complete payments, some clients may have specific invoicing procedures or require additional information. To help streamline and maintain professional, accurate invoices then either using a template or accounting software will be beneficial.
Unexplained fees
Ensure your invoices are itemised and do not contain any unexplained fees. Your provided services and associated costs should all be accurately stated and described on the invoice so your client can easily understand the charges. The more information you give then the easier it will be for them to process payment.
Unclear payment terms
Establish clear payment terms with your clients at the start and be sure to include these on the invoice. Offer a variety of ways to pay to make payments easier and include these within the terms.
On every invoice you send, a ‘payment due by’ date should feature. Do not simply state “30 days upon receipt”, instead display an actual date so deadlines aren’t forgotten. It can be effective to send a polite reminder before the due date and if the payment is late then chase regularly to determine when payment will be received. This helps set a precedent for getting paid on time.
Sending to the wrong person
Have a clear idea of the person or department the invoice should be addressed to. An incorrect contact or department can result in the invoice being lost and also looks unprofessional. It can be very effective, if possible, to maintain a personal rapport with the contact dealing with payments as this may mean your invoice is more likely to be paid on time and also makes it easier to chase.
Don’t undermine all your hard work selling your product or service by sending inadequate invoices. Achieving the correct billing process is essential to your company’s cash flow. A detailed, professional and accurate invoice will help make payment easy for your client therefore encouraging them to pay promptly.