Small business BIG growth®
Words by Lex Brown, guest author
8 simple invoice rules to improve cash flow
Are over half of your receivables outstanding for more than 60 days? Well, you aren’t the only one in that boat… In fact, you’re one of 40 percent of small businesses in the same predicament. In this article, I offer 8 simple rules that will help curb this situation over time and improve your cash flow.
Invoices that are incorrect, incomplete or unclear are always returned and unfortunately will remain unpaid until clarification is provided to your customers. These are the most common reasons for delays in payments.
Below are 8 simple rules to adhere to before you issue your next invoice that will help streamline the process.
1. Clear seller information
The invoice must have a clear view of all seller information. It should include your company’s name, ABN, address and in particular a contact telephone number. The latter is important so that if a customer has questions about the invoice they can call you directly, and immediately. If there’s a separate number or email for customer service, include these too.
2. Clear customer information
The invoice should display a clear view of your customer’s full company name, ABN, and address. It’s also a good idea to note the individual contact person that placed the order or authorized the purchase in case there are any questions about the invoice.
3. Individual unique invoice numbers
Generate unique individual invoice numbers not only for your own accounting purposes, but also to help customers find the correct document and track it through their bookkeeping systems.
4. Clearly state the date, terms and payment instructions
The invoice should have a clear date of issue and note the terms of payment. For example, the invoice should clearly state the due date (or even mention a discount is provided if paid within 14 days). The invoice should state a late payment fee with a default to non-paying clients from a credit-reporting agency.
You need to provide clear payment instructions to the customer on how to pay the invoice, preferably with as many different payment options
as possible. For example, if you want your customers to pay via EFT, you’ll need to include your bank account details. If you want to give them the option of paying by cheque, then put instructions of who to make cheques out to and a postal address to send them to. If you want to give customers the option to pay by credit card or BPAY, state on the invoice: “To pay via credit card please call on …”
Whatever methods of payment you prefer, make sure you clearly indicate this on the invoice.
5. Quantity description and price
Each invoice line should state the quantity of goods or services purchased, whether it’s a case count of items or the number of hours billed; also include the per-unit price. Alternatively, state if the customer is being charged a flat rate for services or for a bundle of goods and services. If the invoice is related to a purchase order from the customer, include the number of that order – this will assist customers in identifying the order and paying the invoice within the specified time.
6. Tax, handling charges and other add-ons
Any taxes, fees, handling charges and other additions to the invoice should be clearly itemized. The invoice should also have a total of all line items at the bottom with a notation to indicate that number is the total sum owed.
7. Make it even better
Consider adding a message box to your invoice template. There, you can thank customers for their business, note important account information or include details on seasonal promotions.
8. Outsource Invoice Finance
The other very attractive alternative is to outsource your invoice finance to a company.
Outsourcing to a factoring company gives you a variety of advantages namely:
- Funding within 5 days compared to waiting for payment based on your trading terms, which can be as long as 90 days. Why wait 90 days to grow your business?
- Asset Free finance, so they provide funding without putting your personal assets at risk. Does your home really need to be on the line for your business?
- Flexibility and scalability to your business, meaning that your available credit grows as your business grows. You decide which invoices need help.
- Approving Finance when others don’t. They provide support even if a large proportion of your client invoices are from a single debtor.
- A flat transparent fee structure. There is peace of mind when it comes to their fee structure with no hidden fees or charges. You know exactly how much your repayment will be, right up front.
After 35 years of running his own businesses within retail, real estate and recruitment, Lex now works closely with small businesses helping them with cash flow finance to fund their growth. Lex’s objectives are to help people, and connect people so they can help each other.