“An invoice with all the right components will ensure timely payments and result in a smooth cashflow position for your business”
– Anonymous
An invoice and the invoicing process is a critical component of a business, and when done correctly, it ensures that clients pay on time and the balance books healthy.
Cashflow management is essential for every business. It refers to how much money is coming into your business and how much money is going out. Cashflow allows a business to stay afloat and expand. When cash flow is compromised, it affects the financial health of a business.
Below are some important considerations when issuing invoices to clients to help you maintain a healthy cashflow.
Are Invoices Being Sent Out on Time?
When are you sending your invoices or tax invoices –
- at the end of a transaction?
- during the project?
- on a monthly basis or on another regular timeframe?
Or are there specific long-term clients that you can send repeat invoices to automatically? The more you control the timing of when you send the invoices out, the earlier, the better, the higher the chances of being paid on time.
Difference between Invoice and Tax Invoice
Include as much detail as you can. If you are a GST registered company, then the invoice must explicitly say Tax Invoice. If not, you can use the word invoice. According to the Business Gov website, if the company you are dealing with does business over $1000 with you, their ABN must be included in the invoice. According to the Business Gov website, If your customer asks for a tax invoice and you’re not registered for GST, show on your invoice that there is no GST. You can do this by including the statement ‘price does not include GST’ or displaying the GST as nil or zero. Also, where possible, list every item of service or product offered. This is important where some clients question or challenge the particular task carried out and the associated cost.
The Australian Taxation Office website sets out further information on invoicing and examples here
Addressing the Invoice
Also, ensure that you include a work order number and send the invoice to the contact who can authorise payment, the accounts payable person or department. An invoice sent to someone not connected with payment may sit in an in-box without action.
Client Discounts
If you have offered your client a discount or have not charged them at all, still list it in the invoice. It provides the clients with a reminder of the actual cost of the work/project completed. This helps if you have ongoing relationships with the clients and helps with future negotiations.
Payment Terms
Ensure these are set out in the invoice and have been included in any documents before agreeing to undertake the work, late charge fees and any additional costs. This will help to mitigate the risk of misunderstanding.
Early Payment Discounts
If you can do so, allow for a small discount to encourage early payment of the invoice. This will help with your cash flow.
Payment Options
Where possible, offer different payment options. The more payment options, the more convenient it for clients to pay you – on time.
Customer Touchpoint
Early on, establish who you need to send the invoice to in the company. At times, the client is more than happy not to be involved in this process. Once you know, you can craft your invoice e-mail wording accordingly.
Invoice E-mail Wording For Overdue Payments
When you send an e-mail, be careful with the wording. This becomes a permanent record, so be polite and professional. Address the recipient with a greeting and remind them that the following invoice number for the following product/service, which was due on so and so date remains unpaid. Ask for when the payment can be received and invite the recipient to get in touch if they have questions or concerns. When an invoice e-mail wording is clear and concise, it leaves no room for ambiguity.
Payment Follow Up Call
When you make a payment follow up call, use a friendly tone to remind the client an invoice is due. But there is one thing to note here; timing is everything. If your invoice payment term says 14 days, then you can wait for day 16 or 17 to contact the client to ask for a payment, for example. But, if you call on day 25 or 26, you run the risk of the client thinking it is acceptable to stretch out the payment. You can also use a mix of automation through Xero or third parties to chase overdue invoices. People respond differently to the different methods used to remind them to pay. Whichever way is chosen, always be polite and sincere.
The invoicing process is an important cash management activity for businesses to operate effectively and place them in their best possible financial position. It is crucial to both streamline invoicing as much as possible and be flexible where changes need to be made.
Contact On Point Support to assist with invoicing for your business and other related services.
