As a small business owner or sole trader, it’s important to get your invoicing process right.
It is one of those fundamental tasks that can make or break your cash flow, and potentially your entire business.
This essential guide will explain everything you need to know, from best invoicing practices to why getting the process right is more than simply getting people to pay on time.
Put simply, an invoice is a bill that an individual or organisation pays to another for products delivered or services provided.
Invoices provide a vital paper trail, establishing payment timeframes and expectations, and easing the process of staying on top of accounting and tax requirements.
A professional invoice should include:
Small businesses need a healthy cash flow to survive. Without it, business owners cannot pay their expenses and invest in new development or growth.
Your business needs effective cash flow to thrive, and a disorganised invoicing process can harm that. Creating a reliable system to make sure invoices are sent out and chased promptly will allow you to build a more reliable revenue stream.
Professional invoicing demonstrates to your clients that you are serious about your business and have a detail-orientated approach to it. It can be the difference between someone choosing to renew a contract with you, or work with your company again.
Ultimately, people want to partner with someone who acts professionally and provide polished and easily comprehensible invoices in a sensible manner.
Invoices also act as legal records and can, therefore, be vital in the case of any disputes or if your organisation is audited. They act as a proof of transaction and agreement between yourself and your client.
By documenting your business income, you will also be able to stay on the right side of HMRC and to more easily complete your tax returns.
The perfect invoicing system will not only mean you are creating and sending out professional and clear invoices on time, it will also allow you to track, follow-up, and maintain necessary records.
It is vital that you stay on track regarding which invoices have been paid and which remain outstanding. If you are not aware of this information, it is possible a payment could slip through the net or you could accidentally invoice a client twice.
Whether you create your own system on a spreadsheet, or use the tools provided by accounting software providers, you will need to be able to know at a glance what stage of the payment process each invoice is at.
If a client is late making a payment your first step should be to send out a friendly reminder, assumed the invoice was overlooked rather than ignored.
These reminders can then be escalated if payment is still not received. They should be increasingly direct, but it is important that you always remain professional; after all you want and need to be paid and may want to have a future relationship with your client.
If any of your clients regularly pay late, you might want to look at stricter payment terms, asking for a deposit upfront, or even implementing late fees.
Invoices are essential financial records. Copies of all sent invoices should be maintained, along with any communications around them – including those related to disputes or late payments.
Again, most accounting software can do this for you automatically.
In conclusion, effective invoicing is far more than an administrative task. From boosting your cash flow to improving client relationships, a strong invoicing system can transform your organisation.
Your invoicing system should evolve as your business grows, and it is definitely worth considering using automation to save yourself time and help you to keep track of invoices.
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