Every small business owner knows just how important a timely, paid invoice is for their bottom line.
One of the biggest issues standing in the way of success for small businesses is cash flow. Cash flow can be held up when your customers don’t pay their invoices on time. And while you can’t always guarantee a client will pay early, you can avoid any invoicing mistakes that will definitely cause a late payment.
Seamless small business invoicing, especially for new businesses, can be the difference the between smooth business operations and having to resort to expensive loans, maxing out credit cards, and other sub-optimal financing options that make it easy for you to fall into increasing debt.
If you’re a new small business owner, you might not recognize just how important the invoice itself is to getting paid. Here are 10 small business invoicing mistakes start-up owners make, and how to avoid them.
1. Waiting to send an invoice
It doesn’t need to be said that forgetting to send your invoice is one blaringly obvious mistake. If you don’t send your invoice, you probably will never get paid.
But one common mistake that business owners make that can lead to forgetting to send an invoice is playing the waiting game. Perhaps you think it’s best to wait until the end of the month, or to send all of your invoices out together on a Friday afternoon. But the reality is, this tactic can cause endless delays when it comes to getting paid.
Generally speaking, the sooner you send your invoice, the sooner you’ll get paid—and the less likely you’ll be to forget to send it altogether. For new or one-off clients, make it your policy to submit an invoice immediately following the completion of work.
2. Neglecting a preliminary contract
New small businesses, and sole proprietors, in particular, are often in a rush to close a deal with a new client—so much so that they’re willing to move ahead on a project before signing a contract.
But a handshake deal won’t do: A contract allows you to set the parameters of your project, ensuring that you’ll be paid regardless of whether your client has a change of heart. You can also use this opportunity to set payment terms and specify a rate.
Asking a client to sign a contract isn’t awkward or a dealbreaker—and any client that refuses to do so likely isn’t someone you’ll want to do business with in the long-term.
3. Not automating their invoices
Generally speaking, if you can automate a task, you should. Invoicing is no exception.
Automating an invoice with quality accounting software takes the human element out of the equation and makes it much more likely that your invoice will be sent in a timely, consistent manner, increasing the likelihood of its prompt payment.
You might be familiar with this model if you use subscription services such as Netflix or Spotify. These companies know that it’s easier for the customer (and for them) if they can automatically bill them every month, rather than asking for their credit card information every time you want access to their services.
With clients who use your services on a recurring basis, ask their permission to set up an automated invoicing system where they are billed regularly for your services. Knowing that their money will arrive in your bank account at the same time each month will be a relief.
4. Omitting important details
An invoice isn’t just a document where you ask for money. In order to avoid mix-ups, misunderstandings, and mistakes—on behalf of your client or anyone else involved in this process—you need to include certain information on each invoice.
As a baseline, be sure to include the following:
- Your company’s legal name and number
- Your office address
- The client’s name and address
- Invoice number
- Invoice issue date
- Payment owed
- Payment due date
- Payment terms
- Itemized list of products or services that you provided
- Applicable tax numbers.
5. Not branding their invoices
Again, an invoice is not simply a document requesting money. You could list all of the necessary information in a simple Word document, line by line—but would that encourage clients to take you seriously and pay promptly?
Use your invoice as a way to brand your business: Include your company logo, colors, fonts, and any other stylistic flourishes you think will set your business apart from others. Design and present your invoice in a clear, professional manner that exudes confidence. In all, make your invoice memorable and impossible to ignore.
Not only will sending a unique, branded invoice keep you top-of-mind, but it helps build your brand that can actually help with PR, recruiting, and other seemingly unrelated tasks.
6. Not tracking their invoices digitally
If you’re still using a paper-based system to send out invoices, stop. There are plenty of excellent digital tools you can use to send invoices.
Not only does sending your invoices digitally save you money on postage and office supplies, but doing so makes their status infinitely easier to track. Did you send your invoice out this month? Did the client receive it? If so, have they received any payment reminders? Do you have a backup invoice in the cloud for your own records?
If you don’t track invoices digitally, the answer to all of the above questions could be “Maybe,” “I have no idea,” or even “Nope.”
7. Using unclear payment terms
One of the most important pieces of information to include on an invoice—as well as in the contract—is the payment term for the invoice.
Traditionally, businesses used the term “net” to denote when the invoice would need to be paid. Net 30 meant that the client had 30 days to pay the invoice.
According to Freshbooks, literally using the word “days” as opposed to “net” is a better way to get paid on time. Use the phrase “Please pay within 30 days of receiving this invoice” and including the invoice issuance date will give clients a clear timeframe to follow.
8. Not following up on unpaid invoices
Unless you have a recurring payment system in place with clients, you’ll have to rely on your clients to pay by your payment terms.
And if they don’t? You may have to levy a late charge. Or you may choose to give them some wiggle room. Either way, you need to follow up.
Some business owners are reticent to follow up on invoices, feeling that their original message should be enough to get the point across.
9. Including hidden charges
Do you charge an hourly rate, and actually spent a few extra hours researching or prepping for a project that you didn’t report to your client? Did you need to hire a freelancer to help complete your task that you didn’t think you’d need to? If you didn’t clear it with your client first—or at any point in the process—you can’t bill for it.
You especially can’t try to slip an unexpected charge into your invoice unnoticed. A client that sees you trying to bill them for an amount they didn’t agree to likely won’t use your services again. Was that extra hundred bucks, or even thousand, worth ruining a fruitful relationship over?
10. Forgetting their manners
Be nice! This is a business transaction, but at the end of the day, everyone involved here is a human being (for now). Use words like please and thank you in your invoice and in any messages you have with your clients. The power of polite, respectful communication can compel businesses to pay faster than cold—or worse, rude—missives ever could.
Invoicing isn’t easy for new small businesses, and the learning curve can be a little steep. Though the process of getting paid on time is never easy, it gets easier when you avoid simple mistakes that otherwise influence clients to forget, ignore, or otherwise dismiss you. Get on top of your invoicing game and you’ll see more consistent cash flow right away.
Eric Goldschein is a staff writer at Fundera, a marketplace for small business financial solutions such as business loans. He covers entrepreneurship, small business trends, finance, and marketing.