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6 Rules of Invoicing
6 Rules of Invoicing
Invoices - those pieces of paper that prove that your business is successful. Why is it that they so often turn out to be the bane of your life?
Businesses are often forced to waste too much time, effort and money trying to collect invoices on time.
There are potentially many reasons why your customers will pay late, ranging from basic bad administration, to wilful non-payment as a result of financial difficulty.
Most likely, however, it is ignoring the basic rules of invoicing that makes life difficult come payment collection time.
Here are the six rules of invoicing that if followed, will eliminate 90 percent of the 'pain' of getting paid:
1. Obtain written and signed purchase orders or contracts with every sale. If there are any queries or disputes, these can be referenced later.
2. Ideally terms and conditions must be written and agreed to, before the first sale. Going forward, it is a good idea to print them on the back of each invoice to avoid any ambiguity.
3. On the invoice state what has been supplied: for example, if you supply "10 blue A4 ring binders" put exactly that, do not use a loose definition i.e. "10 units". Make descriptions as clear as possible.
4. Invoices should be on your company letterhead. Letterhead paper must show your company registration number (if applicable), your VAT number (required if your turnover is over £50,000) and the businesses registered address. You should also clearly state a contact number for any queries with the invoice and a number for them to re-order!
5. If you are VAT registered and do not show the VAT number on the invoice technically your customer does not have to pay the VAT element of the bill. If you are waiting for confirmation of the VAT number, you will have to invoice for the VAT element after the number has been confirmed.
6. Payment terms must be stated on the invoice. Your customer does not have to pay you in 30 days if it is not stated on the invoice and/or terms and conditions. Invoice Finance providers have credit control and managing invoices down to a fine art.
If you already make use of Invoice Finance to improve your cash flow, fund your business etc, you will be aware that the following not only secures your funding but helps improve the likelihood of being paid on time:
1. Attach a copy of any purchase order and/or delivery note to the invoice. This will create a full 'paper-trail' that is available to the person processing the payment. This will be especially useful when dealing with larger organisations, when it is likely that the person handling payment is not the same person who placed the order.
2. Some customers will regularly try to delay payment, by not informing you of missing paperwork until the invoice is actually due. To avoid this simply schedule regular telephone calls to confirm that the invoice has been received, this ensures any missing paperwork or invoices can be re-sent promptly, preventing delayed payment.
3. Credit check your customers. You wouldn't give money to a stranger, so why offer credit to a company you don't know the strength of? If an invoice turns into a bad debt, you are likely to receive nothing (unless you have taken out a bad debt protection policy).
If all the above seems too much, you can outsource the credit control work to someone else.
Factoring provides a cash flow injection for your business, with 85 percent of the value of each invoice paid to you upfront and the rest given when your customer pays. As well as giving funding to your business, factoring companies will also manage your collections procedure. If you have a well managed credit control process, but could do with an injection of cash into the company, perhaps invoice discounting would be more suitable. This service provides the same funding levels, but no 'collections' work, which you retain inhouse.
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