What should every business owner know about invoices? Besides the basic definition, it’s important to know not just how to create and send a valid invoice. It’s also a good idea to learn how to use invoicing to speed up the pay cycle and incentivize customers to pay more quickly. But the starting point is the definition.
What Is an Invoice?
People who are new to entrepreneurship are often mystified by invoicing. They shouldn’t be, because billing customers and getting paid is actually pretty simple in today’s online, cyber environment. In most cases, there are no physical envelopes to mail out, no phone calls to make, and minimal personal contact with buyers. Conveying an invoice to your customers via email is the initial, core component of billing.
It’s important to work with a universal definition of what an invoice is. Here’s a good starting point: A valid invoice includes a time stamp, and is a business document that does two things. First, it simply records a specific transaction between the seller of goods/services and a buyer of those goods/services. Part of the essential information is an itemization of everything sold in the transaction.
For example, if company ABC sells five pounds of gourmet coffee beans to a XYZ retail store on December 10, 2021, for $12 per can, and the tax rate is eight percent, the invoice would note the buyer’s name, the seller’s name, the date, the itemization of the five cans, the sub-total price of $60, the added-on tax of $4.80, the grand total invoice price of $64.80, and the amount due, which in this case is also $64.80. Note that the amount due is often less than the grand total price because of early-payment discounts, special offers, and coupons.
Online Invoicing: The Basic Steps
The general rule of getting customers to pay on time is that you need to formally let them know exactly how much they owe, why they owe it, how they can pay, and whether there are any discounts or incentives for paying early. For most situations, creating a valid, effective invoice consists of the following steps:
- Create a Professional Document: You have a lot of choices here, whether you use a template you downloaded from a financial site, an app on your hard drive, or a standard invoice-maker within a spreadsheet suite. The key thing to remember is to use a businesslike font and style, but try to choose something that goes well with your own logo, website colors, and wording.
- Add Total Price and Special Terms: Always include pricing detail in an invoice. That means full itemization, tax rate, grand total prices before and after tax, and special terms that impact price. For instance, if you want to let buyers know that they have 30 days to pay, put the words “net 30” after the invoice amount.
- Use the Word “Invoice”: A best-practices guideline in most industries is to use the word “invoice” at the top of the email message or in the subject line of the transmission. Your customers receive various kinds of messages from you, so it’s wise to let them know that this one is not a newsletter, announcement, or something else. It’s a bill, and needs to be clearly marked as such.
- Add Essential Details: Always include your own organization’s name, address, phone, email, and other contact data. Do the same for customers so the invoice gets routed to the correct person.
- Describe Goods, Date It, and Send: Add a brief, identifying description of the goods or services, place the date prominently on the document, and send it. You’re now done with this part of the payment cycle. Between now and when you receive payment, you have no need to do anything else unless it’s your company’s custom to send out payment reminders a few days before due dates.
Use Invoicing To Get Paid On Time
When it comes to invoicing effectively, the process includes at least a little bit of “art” along with the science. In short, if you know a few tricks that accounts-receivable experts use, you can make get paid faster. Let’s face it, sending a customer a bill is part of the collections cycle, which means human emotions are involved. Business owners need to craft their written invoices the right way, send them at the right time, and use every tool at their disposal to make sure clients not only pay on time for the full amount but also remain loyal, long-term customers.
Here are several tried-and-true techniques to speed up the payment process via “smart” invoicing:
- Offer Multiple Ways To Pay: Don’t leave your buyers stranded with just one or two payment methods, like credit cards and debit cards. Consider adding e-check options as well as snail-mail checks, payment apps like PayPal, in-person payment, phone-based payment, and direct bank withdrawal via ACH for recurring payments. Many studies have shown that sellers who give buyers more ways to pay get paid faster and suffer lower customer defaults and collection activities.
- Make Follow-Up Calls: As invoices age past their due dates, be sure to make follow-up calls and send emails at precise intervals. A popular system is to send an email one day after the due date with a reminder that the bill is now late, but that they buyer can pay right now and avoid any fees or penalties. Then, about one week later, phone the customer and ask for over-the-phone payment or make arrangements for payment via automatic bank debit.
- Offer Early-Payment Incentives: Many sellers, large and small, offer payment incentives to boost their cash flow. For example, a common invoicing term is “1p/10,Net 30.” It means the customer receives a one-percent discount if the amount is paid in full within 10 days. Otherwise, the full amount is due in 30 days. Some online retailers and service providers offer 2p/10,Net 30, which is the same except that the discount offered is two percent. Note that it’s possible to just use the percent sign in place of the “p,” or to simply write the term as 1/10,Net 30.
- Don’t Be Afraid To Say “Goodbye”: If you have a customer who presents repeated problems with payment, is always late, or is otherwise troublesome, don’t be hesitant to delete their account from your files and turn the billing over to a collection agency. The point is not just to get the remaining amount owed but to remove the name from your official list of customers. There’s no reason to invest time and money into chasing payments. Unfortunately, it’s a fact that some customers are not worth your time, and you just have to cut them loose.
More Than Invoicing
Operating a business is about much more than just sending out invoices. For owners who want to make sure they have all the bases covered, it’s wise to partner with a service provider like Metro Payment Technologies. We know about invoicing, of course, but can also get you up and running with everything you need to support your customers and optimize the bottom line.
Feel free to visit our website or simply give us a call at 1-800-771-3719 to get the help you need. Some of our most popular products and services for companies of all sizes include payment terminals, e-commerce solutions, payroll, customer support, PCI compliance, point-of-sale systems, wireless terminals, installation, Wi-Fi, e-check processing, charge-back/retrieval handling, and more. Yes, there’s a lot more to being a business owner than invoicing, so get the help you need by contacting Metro Payment Technologies at your convenience.