Don't suffer a bad invoicing system
How can invoicing be bad you ask? It can’t be that hard to get it right, can it?
” Your invoicing system is critical to having a sustainable business and healthy cashflow, no mater what industry you are in. “
What constitutes a bad invoicing system?
Not communicating invoicing and payment terms – your clients don’t know what to expect and plan. This can also lead to disputes.
Not tracking your jobs properly and not charging for all your time, materials, variations etc. – you loose out on income and you are reducing your gross profit – you could end up making no profit if you don’t manage this.
You wait too long to invoice (e.g. end of month of longer) – you are delaying being paid because your clients will then take their time paying you – this is detrimental to your cashflow.
Long payment terms (more than 7 days) – your cashflow is impacted, as you have to pay your outgoings for which you wont recover for months.
Not having a robust and consistent system of chasing overdue invoices as soon as they become overdue – if you don’t remind clients to pay, there is a good chance that they won’t pay. Why would you work for free?
Not taking upfront deposits for larger jobs – firstly, you will have to fund the outgoings to deliver the job (e.g. labour, materials etc.), which could be significant, and you may not have the cashflow to do this. Secondly, you run the risk that you don’t recover your costs if the client then fails to pay. Why would you risk loosing money?
Not requesting progress payments – if you wait till the job is finished, you run the risk that the client disputes the amount and may not pay.
Not chasing retention payments – sometimes the client retains a certain amount from your invoice pending certain conditions being met. If you don’t manage and chase the retention payments, you run the risk of never being fully paid for the work.
How to set up an awesome invoicing system that improves cashflow and helps you manage your client relationships better:
Set our your invoicing and payment terms clearly in your Terms and Conditions and make sure the T&Cs are provided to new clients upfront (either when you send a quote or engagement letter or on your website).
Have a proper time tracking system to make sure that all client related work (even minor work) is captured promptly and accurately so that you invoice your clients fully.
Issue invoices promptly and regularly: at least once a month for longer jobs, progressively for larger jobs (i.e. progress claims) or as soon as the job is complete (don’t wait till the end of the month)
Reduce your payment terms to 7 days, if possible.
Set up a system to send payment reminders for overdue invoices (ideally, the day they become overdue and then every 7 days thereafter). Most accounting software systems will give you this functionality but you need to make sure it is set-up properly.
Request upfront deposits for larger jobs.
Ensure your contract (e.g. quote, engagement letter, T&Cs) provides for progress payments based on completion targets then set up a system to issue progress invoices promptly.
Set up a system to ensure that all retention payments are chased.
” MOST OF THE ABOVE CAN BE ACHIEVED BY UTILISING THE LATEST TECHNOLOGY. ALOT OF THE LATEST ACCOUNTING AND PROJECT MANAGEMENT SOFTWARE SYSTEMS WILL DO THE ABOVE AUTOMATICALLY FOR YOU. “