Invoicing is a prerequisite to getting paid for your hard work, so it’s important to know when to invoice a customer. Without effective invoice management, you won’t have the resources that you need to run your company. But small businesses often mishandle their customer invoices, treating them as a necessary evil to be sent when they get a spare moment rather than an essential part of their business. If this sounds like you, we totally get it. However, taking a few steps to eliminate harmful customer invoice mistakes can give your business the breathing room it needs to grow and succeed. Here are the five mistakes to avoid, which we will explore in this article:
- Overlooking the Importance of Invoicing
- Not Establishing Clear Customer Invoicing Processes
- Not Knowing When to Invoice a Customer
- Omitting Important Details from Invoices
- Failing to Establish Expectations in Advance
Overlooking the Importance of Customer Invoicing
Cash flow is key to the success of small businesses. It’s what keeps the wheels running and allows you to reinvest resources to grow your company. But a lot of small businesses focus on acquiring new clients and delivering for their existing clients and overlook the importance of invoice management.
This makes sense, after all, what is a business without clients? But all of your hard work to get those clients and do the work for those clients means very little if you don’t get paid for your efforts. Without tending to your customer invoicing practices, you’ll end up with inconsistent revenue which stunts your growth and could even put your business on unsteady financial footing. You won’t know how much money you have available, won’t be able to project future revenue, and won’t be able to pay expenses to deliver services to current and future clients. You need cash on hand to run your business, and invoicing is a necessary step towards building that capital.
Take the example of a contracting small business. Far too many contractors fall into the trap of paying for materials and labor for their current client using the money from their next client. This delays each project until the contractor can find a new client (since they’ve already spent the current client’s money on their past client’s work). It means that the contractor is constantly playing catch-up and comes dangerously close to a construction Ponzi scheme. But if they managed their invoicing more effectively, they would have a consistent cash flow that would stabilize their business.
That is an extreme example, but your business can end up looking surprisingly close to those contractors if you don’t take control of your customer invoicing and avoid the other mistakes in this article.
Not Establishing Clear Customer Invoicing Processes
This is an especially easy trap for small businesses to fall into. When you’re just starting out, you have few enough client relationships that you can treat each one as a more or less unique encounter. From drafting contracts to crafting fully personalized invoices, each step can be customized to the client and handled relatively casually. It might not be efficient, but then again what is when you’re just starting out?
That might get you by at first, but it quickly gets unsustainable as your business grows. The more clients you have, the more the administrative cost of customer invoicing will stack up. Customer invoicing, record keeping, and everything else become an enormous headache. That takes resources away from the other things you need to be doing to continue to sustain and expand your business: generating new leads, serving your clients, and growing your team.
Creating centralized and consistent customer invoicing processes makes it easy for you to stay on top of billing your clients and makes your job easier by allowing you to focus on running your business. You can even implement an automated invoice management system to take things entirely off your plate. These steps will also streamline the client experience, increasing brand loyalty and encouraging return customers. No one likes dealing with an administrative mess and it’s important to put your best foot forward in every interaction with the client, including invoicing.
Not Knowing When to Invoice a Customer
You might think that clients would be happy about not having to pay for services immediately, but this isn’t actually the case. In fact, it creates headaches on both sides hurting the relationship and damaging both businesses. That’s why it’s important to know when to invoice a customer, and to invoice sooner rather than later.
Companies need to know how much money they have to operate. Tardy invoicing is bad for your client because it makes it hard for them to accurately evaluate their finances. They might know that they owe some amount of money for services rendered but without knowing the amount based on an invoice they cannot budget around that expense. And they may well forget that they have not yet paid for the work as time goes by, which means that your invoice will come as both a surprise and a burden when it does come. Worst case, they won’t have the funds available which will damage both of your finances.
It isn’t great for your business, either, even if your clients can pay once you do send the invoices. If you do the work of assembling and recording the information which will go into the customer invoice immediately then you will at least be able to plan around that future revenue. But you will not be able to make use of that money to grow your business until you send the invoice. And if you don’t put the invoice together as soon as the work is done (if not earlier), then you run the risk that your ultimate customer invoice will be inaccurate. Plus, you won’t be able to project future revenue accurately.
At the end of the day, you’re not doing anyone a favor by failing to bill clients as soon as possible. Not only will your client thank you for invoicing them on time, but your financial team will appreciate it just as much.
Omitting Important Details from Customer Invoices
It’s important to not only consider when to invoice a customer but also what to put in the invoice. Believe it or not, you need to include more in your invoice than a number with a dollar sign in front of it. Many small businesses omit vital details from their invoices which will help them get paid on time and in full.
An often overlooked item to include in a customer invoice is a due date for payment. You don’t want to send invoices into a void and then manage finances based on invoices that have been sent and will be paid sometime. Due dates make the process clearer and easier for everyone involved. You can also use due dates to follow up with the client as the dates approach, and bug them if they let them pass.
Perhaps the biggest section that small businesses overlook is an itemized list of services. You should break down what the client is being billed for, including time and expenses per task or project. This gives the client concrete information about what they are getting for their money, establishing trust which will establish customer loyalty.
Even if a client wouldn’t require itemized billing, it’s still a good idea to include it in your customer invoices. At a minimum, it will make you look professional and aboveboard. It also protects your interests because it gives you something concrete to defend against objections from your clients (just make sure you keep good records to back up your itemized lists). Plus it encourages you to keep track of your work, establishing good internal habits. It is also a great way to create personalized invoices without reinventing the wheel for each customer.
Finally, make sure to include easy ways for the client to pay you at the end of the invoice. The simpler it is for your client to fulfill the invoice, the sooner you’ll get your money. And again, streamlining the payment process for your clients will encourage them to come back to you for more work.
Failing to Establish Expectations in Advance
One of the worst invoicing mistakes that small businesses make happens long before they draft the invoice. No matter how detailed, concrete, and timely your invoice is, it can still cause problems if it does not match client expectations. No one wants to feel as though they are being taken advantage of or overbilled. But small businesses are often so eager to sign on new clients that they don’t take the time to get the terms of work down in a legally binding contract. They’ll settle for a handshake and be overly vague when it comes to what the work will take to complete. After all, you don’t want to scare away the client you just worked so hard to acquire.
But not being upfront and clear about what work is being done and what it will ultimately cost is a sure way to establish toxic client relationships. Since you haven’t established clear boundaries, scope creep will become an issue, threatening your limited resources. And when you invoice your clients, they will be much more likely to take offense to having to pay what you deserve.
If, however, you take the time to establish expectations in advance and send a customer invoice that matches the contract which you signed at the start of the project then things will go much more smoothly for everyone involved. Your client will see that they’re paying for what they asked for, giving them confidence in the invoice and allowing you to get them to cough up what they owe if they try to object to the invoice.
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