The Ultimate Guide to Invoice Management
Invoices have been around since 1670. The word is derived from Middle French origins and originally meant a “dispatch of goods”. Since its inception, the invoice has been recognized as an imperative part of any trade or business practice. Invoices have traditionally been paper based. As times changed and many businesses moved online, the invoice followed them. Many companies now use an online or e-invoice option to replace the long tradition of paper invoices.
In this article, you will gain insights about: 1) invoices and invoice management, 2) how to invoice your clients, 3) managing invoices from your suppliers, and 4) invoicing software.
INTRODUCTION TO INVOICES AND INVOICE MANAGEMENT
Invoicing is an essential part of any small business. An invoice operates similarly to a bill or a sales form. An invoice is the physical manifestation of a sales transaction which takes place between a buyer and a seller. It itemizes the product provided by one party and the price that the other party will pay for the product. It has become an imperative part of any business transaction. The invoice helps in the processes of placing an order, fulfilling an order, the delivery of the order and the final payment of the transaction.
While the idea of an invoice is relatively simple, the invoice has involved to fit the needs of the changing business world. Today, a business may receive one of several different kinds of invoices.
- They may receive a proposal invoice that suggests how much a business will charge for the transaction.
- A business may also receive an interim invoice. An interim invoice will be a reminder of current charges and is often sent out regularly through long projects.
- Today, businesses also use recurring invoices for regular and frequent customers. Recurring invoices have benefited from the online revolution because they are now easily automated.
- If the payment for an invoice has not been received, a business can send out a past due invoice as a reminder of the overdue payment and any additional charges that have accrued.
- Finally, a business can send out a final invoice. This will usually be the last invoice that is received upon the completion of a transaction or project.
- If a business operates internationally, they may also have to issue commercial invoices, consular invoices and customs invoices.
All of these invoices are designed specifically to ensure that the company is paying the correct amount of tax and duty required when importing and exporting products.
Invoices are a necessary part of business for two reasons. For the business providing the service, it is the customary and accepted method of requesting payment for goods or services. For a business receiving an invoice, it is a necessary part of the business because it helps keeps financial accounts current and credit ratings high. Invoice management is also an essential part of making tax payment easier for both parties.
Invoices should be incorporated into an invoice management system. This system works two ways. The first way invoice management works is to ensure that the correct client receives the correct invoice in a timely manner. The second way invoice management works is to ensure that all of the invoices received from suppliers are organized, paid and noted in the appropriate accounting ledgers.
HOW TO INVOICE YOUR CLIENTS
Creating an Invoice
Many invoices will have a standard format. This format should always include essential company information such as the sender, receiver, invoice number, the list of services and the terms and conditions. The invoice should also always include the payment methods accepted. The following list contains the elements that should always be included on a standard invoice.
Businesses should always include a professional header on their invoices. The header will usually include basic information such as the business name and contact information. Mailing addresses, websites, email address and phone numbers associated with the business should be included.
The client’s information should always be included on the invoice. This is to ensure that the invoice goes to the correct client. It will also ensure that the invoice reaches the right hands when it arrives at its destination. The client information should be placed underneath the header and on the opposite side of the page.
Invoice number and date
- Including an invoice number on each invoice is essential for invoice management. It will help both the sender and the receiver of the invoice keep track of the number of invoices received. The way that an invoice is numbered can be varied. However, the invoices sent to one client should keep a uniform number system to avoid confusion.
- Including an invoice date is also an essential. Most agreements will include a payment date in their terms and conditions when they agree to a project. Including a payment date will help to ensure that the invoice is paid on time. Some research suggests that an invoice is eight times more likely to be paid on time when it includes a specific due date.
Itemized list of services
To avoid disputes and confusion, each invoice should include an itemized list of services. The list should include the service performed and the date it was performed. It should also include the relevant quantity whether it was services completed, products sold or hours worked. Finally, the itemized list should include the rate for each service. The itemized list should always be finished with the subtotal for the invoice.
Terms and conditions
The terms and conditions of the transaction will include several important points. If applicable, this section will include a return policy. It may also include a cancellation policy for both products and services. This section will also include the terms of payment. If the invoice must be paid within a certain period of time, it will be stated here. It will also outline any fees that may be incurred should the invoice be paid late.
Payment methods accepted
The invoice should be completed by outlining the payment methods accepted for the service. It should also detail how to make the payment. If payment is accepted through PayPal, the user’s PayPal ID should be included. If the payment is to be made through bank transfer then bank details should be included. It is important to note that the more payment methods a business accepts, the easier it will be for clients to pay the invoice in a timely manner.
Setting up Payment Terms
Setting up payment terms is one of the most fundamental parts of any sales transaction. It is important to set up the terms of payment during the negotiation of any work and certainly before any work begins. Small business owners should understand that their clients will ensure that their own bills are paid before they begin paying outside contractors. As a result, the average invoice submitted by a small business is paid two weeks late. After the terms and conditions of the deal are agreed to, certain facets of the agreement should be included on an invoice.
Here are some of the essential things that should be included in the payment terms and conditions:
- The service or product provided: Businesses should always give clear details about exactly what service is being performed by the provider. Clear expectations and goals are essential for making sure that everyone is satisfied with the transaction.
- Timeline for the work: A schedule, calendar or timeline should be established for all work carried out. This should include a completion date as well as any milestones for longer projects. The timeline will also provide an indication of how often you should be invoicing the client.
- When the payment is due: The payment due date should be negotiated before the work begins. The payment due date may vary depending on the processes used by each party. It is important to find a compromise and ensure that it is noted in the contract.
- Guarantees: Any quality or manufacturing guarantees should be included in the payment terms. A guarantee promises that the product will meet certain standards. The guarantee helps to ensure that the customer receives the product that they expect. This will also include a course of action should the work or product not meet the client’s expectations.
- Regarding early termination of a contract: A significant number of contracts are terminated before the agreed finish date. Businesses should always include a clause regarding terminated contracts. This will protect a business from significant loss of income.
Tips for Making Sure Your Invoices Get Paid
An invoice is essentially a bill. Very few people enjoy receiving bills in any circumstance even if the product or service is necessary for daily operations. As a result, people often put bills to one side until they feel that they cannot put it off any longer. This makes it difficult for small businesses to get paid. However, there are things that businesses can do to speed up invoice processing times to ensure that they get paid faster.
Invoice promptly to encourage prompt payment
The sooner you send an invoice, the sooner you will get paid. It is a very simple concept. One of the best ways to get paid on time is to submit an invoice as soon as the work is completed.
You should ensure that you schedule enough administrative hours in your work week to make sure that you do not fall behind on basic tasks like sending invoices.
You should also ensure that your invoice is correct and includes all of the important details that were discussed above. If small mistakes are made or important details are missing, confusion or disputes will add weeks, potentially months, onto the invoice processing time.
Be clear about payment terms from the start
When you enter into an agreement with another business, be sure that your payment terms are crystal clear from the first day of work. If you expect to be paid two weeks after the project is complete, this should be stated directly. It will prevent any surprises for the client later and ensure that everyone knows what is expected of them.
You should always communicate with the client. You should never assume that you know what is happening on the other side of the agreement.
If you are waiting patiently for payment that simply is not arriving, you may try sending a polite email enquiring about the first invoice. You may then submit a second invoice if necessary.
Ensure that you are not combative in your communication about payments. It is best to be polite but firm when you are working to resolve issues surrounding missed or late payments.
Be aware of or compliant with a customer’s process
Certain customers may have firm payment processes set up in their businesses. You will occasionally have to be compliant with another organization’s accounting processes. You should be aware of these processes from the beginning of the project to avoid confusion later.
Set up a subscription service
A subscription service is a great way to automate invoices and payments for regular customers. This can speed up your processing times immensely.
Offer & accept more payment types
The more ways that a client can pay you, the faster they will pay you. Accepting several different payment forms will help to make sure that the client does not have to go out of their way to pay you. Convenience is key in bill paying.
Offer discounts for early payments
Offering small discounts for early payments is a strategic incentive to encourage customers to pay invoices in a timely manner. The discount does not need to be large. You could offer a 5% discount to successfully incentivize clients to prioritize paying your bill.
Establish a rule to follow up after a certain period on an overdue invoice
You may consider adding a late penalty to overdue payments. In some cases, this will encourage your clients to put your invoice at the top of the list to avoid paying more money than necessary.
If you choose to use this tool, it should be included in your terms and conditions. You should never add on a late fee without the customer’s knowledge.
Here you can find some additional insights on invoicing from a survey of 1,500 people.
MANAGING INVOICES FROM YOUR SUPPLIERS
The second part of invoice management includes managing invoices that you receive from suppliers and outside contractors. This is a process that should be set up and enforced early in your business. Managing your invoices is about more than just paying suppliers. A streamlined system will make paying taxes easier, help you avoid audits, keep your accounts balanced and keep your credit rating up.
Collect and organize carefully any bills, receipts and invoices you get from your partners and suppliers
As soon as you receive any of these materials, they should be immediately put in a safe place where they are kept separate from any other mail. However, you should avoid separating different bills. Keep your insurance, utility and service bills all in one place so they are easy to find.
There are several ways that you can organize your materials. If you operate on a paper-based system, they should all go into a dedicated basket, envelope or filing system.
You may use a paper system and an integrated electronic organizational system. Keeping paper receipts is great but it takes up a lot of space in the office. Even the best paper systems often feel disorganized at certain points of the year. Instead, consider scanning and uploading all paper receipts and invoices and adding them to an electronic filing system.
You can use several electronic tools to keep track of these bills. Google Docs is a free service that offers spreadsheets which are automatically backed up on Google Drive. You may also use dedicated accounting software like Quicken. There are also cloud-based accounting services that are dedicated to invoice management or expense management. The service you choose should always fit the needs of your business.
Create a ledger system
Whether you use a traditional paper system or have switched to bookkeeping software, you will need to create and use a ledger system. The system will help you keep track of all of your revenues, expenses and any other financial information. This ledger system will not only keep you organized but it is also a crucial asset during tax season.
Appoint certain days every week or month to pay bills
As a small business, you should be including administrative hours into your work Some of these hours must be dedicated to accounting and bill paying. The best way to ensure that these hours are not neglected is to schedule them into your work week on specific days each month. You should try to stick to this schedule as closely as you can.
To help keep you accountable, consider adding administrative tasks into online productivity tools. Tools like Basecamp and Asana will allow you to keep all of the tasks related to your business organized and in on place. You can also use these services to send yourself reminders to complete these tasks.
Record and keep track of the status of bills received and bills paid
As soon as you have paid a bill, you should immediately note the payment. Integrate this notation into your whole bill paying process so that you do not overlook any bills.
If you have reached a point in your business where you are producing many invoices, you need to be able to keep track of them both for your records and payments. Invoicing software will help you achieve this. There are many benefits of invoice management software including cutting administrative time and driving productivity.
- Improve the accuracy of each invoice and prevent disputes: Invoicing software is great for ensuring that calculations are done properly and that each invoice is filled out correctly. Simple errors will only encourage late payments.
- Save time by driving productivity: Online systems are designed for increasing productivity. The online system will remember client information as well as recurring projects. It also makes setting up automatic and recurring payments much easier.
- Professional templates: A professional and uniform template is suggested to encourage clients to pay invoices faster. A clean design and detailed information will tell your clients that you take all aspects of the business seriously.
- Keeps your office clean: Using an online system keeps everything organized automatically. This will cut down clutter in your office. It will also allow you to find everything you need by entering a simple search term.
- When you send out invoices faster, you get paid faster: Everyone wants to be paid as quickly as possible. When you take advantage of an online invoicing system, you will be able to send invoices faster. Generally speaking, the sooner you ask for money, the sooner you will receive it.
Invoice management is an essential part of any business. Whether you are sending or receiving invoices, it is important that you use an efficient and integrated system to make sure that you keep everything organized. The practice of invoice management has become much easier with the advent of online systems. Keeping your invoicing procedures streamlined will allow you to keep your finances up to date, protect your credit and pay taxes easier. When you stay on top of your bills, you can spend less time organizing paper and get back to business sooner.