Invoicing is a subject that every business knows about or should know about. In this episode of #TheMoneyFactor I discuss invoicing basics from creating to sending to following up. My guest on this episode is my Head of Operations at Eagle, Angela Reece. As an invoicing factoring company, we are invoice experts. We see these issues that people run across because of our work with clients in regard to invoicing. In the video above and the article below, we cover invoicing mistakes and comprehensive tips on how to get your invoices paid on time through good invoicing practices.
What are some minimum requirements to include on an invoice?
We deal with clients across a wide range of industries, and Angela and I have got many years of experience looking at different sorts of industries from different sorts of clients to their customers. So again, it’s our bread and butter on a daily basis. Some of the key things a client should always have on their invoice are a unique invoice number, invoice date, who it’s billed to, proper name of the company, proper address, an email address of where you’re sending the invoice, invoice terms, and the due date of an invoice.
What every invoice must include:
- Unique invoice number
- Invoice date
- Who it’s billed to
- Proper name of the company
- Proper address
- Recipient E-mail address
- Invoice terms
- Due date of invoice
What do the invoice terms mean?
Net 30 days from date of receipt and net 30 days from date of the invoice are two different meanings. Net 30 days from date of receipt means that your client has 30 days to pay after receiving the goods or services you performed. Net 30 days from the date of the invoice means that despite possibly receiving the invoice a few days after receiving the goods or services, your client has 30 days from when you sent the invoice. Ideally, you want to invoice your client the same day as the receipt of goods or services. Otherwise you are just waiting longer to get paid.
Why do you need invoice terms clearly listed on the invoice?
Discussing invoicing makes it sound easy, but often people can forget one or more of those things. You can use QuickBooks or any kind of accounting system nowadays to produce a nice looking invoice. So the actual ability to produce it is not an issue. It should be easy, but you’ve got to make sure that all of those things are in there. The hardest part of invoicing is that many invoices just say 30 days. Well, 30 days from what? Is it receipt of goods? Is a date of order? Is it date of invoice? It seems obvious, but you’re in a rush to get that invoice issued. You might miss some of the real simple stuff that you absolutely must have on the invoice. That ultimately could mean that you have a problem. Your invoice could get rejected by your customer.
Why would you want an itemized list on your invoice?
You want to list out the types of services or product that’s being sold to your customer. It’s best to have that detailed out, and you need to refer back to a purchase order the company has issued to you. In that purchase order there may be specific terms or items that the customer is requiring you to detail out in the invoice. If you get a purchase order from your customer for a specific amount and you end up billing it for more than that purchase order amount, don’t just raise your invoice to where it doesn’t match your purchase order. You want to make sure you go get the proper change order that may be necessary in order to get that invoice paid. Otherwise, your invoice will get kicked back because it doesn’t tie out to the purchase order that was issued. We see the number of times an invoice can get rejected, and sometimes it is not rejected but rather just not paid.
Why pay attention to the purchase order?
You need to have the amount that’s due from your customer clearly indicated on the invoice. They may have a PO requirement. Purchase orders (or PO’s) typically will tell the seller exactly what they need to do. Look again at your PO and be sure it matches your invoice. If you don’t have a PO, contact your customer and get the right contact information. You don’t want your invoice going to the wrong person. Maybe they’ve got multiple offices and AP (Accounts Payable) is in one place and you sent it to the place where the goods went. We all make calls and say, “hey you’ve got this invoice in your system,” and it could be a few days, down the road two weeks, after the goods have been delivered, all the services being performed and unbeknownst to everybody, information was missing on the invoice. Once you get into a pattern of making sure that your invoices have that quality information on them, you’ll find–whether you factor or not–you get paid better. The last thing we want for any of our clients is to have an invoice that’s delayed because of something simple that could have been done when the invoice was issued.
How should you send an invoice?
You know what to put on an invoice. That’s great. What do you do now? You’ve sold the goods. You’ve completed the service. When should you send the invoice? Who should you send it to? As soon as you finish your services or ship your product you should bill a customer immediately. Any delays in that and it’s going to delay your entire payment process, and you want to make sure that when you do send that invoice out you’re sending it the proper way. Does the customer require you to mail a physical copy of an invoice, or are you able to send them an email copy of the invoice? Go ahead and take care of that so you can get those payments immediately.
How should you handle late fees?
So if you’re going to invoice your customers for any late fees that may be due on the invoice make sure the late fees are clearly identified on the invoice itself, and that’s going to be in the terms and conditions. If your payment is beyond 30 days late, some sellers will charge you an extra percentage or one and a half points, but it’s got to be in their terms and conditions. It’s a good idea that most people will put that on the bottom of the invoice.
How should you collect payment?
The other key thing to have is you want to make sure that your customers know where to send those payments. Do you want payments to come to you electronically, or do you want them to mail you payments? Make sure that information is clearly visible on the invoice to where they should remit those payments. It’s a really key point to make it easy for your customer to pay you. Don’t have them wonder, “should I send it to this address or what?” Usually you can put some information on a box at the bottom. It’s a field you can pre-populate and have as a standard field. Maybe you’ll accept payment by credit card, in which case you can give them a website address to go to, or if it’s an electronic invoice sometimes those will have a hotlink on them so they can click it and pay by card right away or by bank account debit. Either electronic way works, but again, make it easy for them to pay and you’ll find that a lot of companies just want to pay your invoice and don’t want to work out where to send it or what to do with it.
What if your customer does not want to pay electronically?
Don’t assume that they’re gonna pay you by electronic method. Some companies don’t choose that method, and they want to make sure they have a check that they can mail you. So it’s always good to check with the accounts payable department of a company you’re dealing with to ensure that you understand how you’re going to get paid. We’re seeing more and more people that don’t actually issue a physical invoice anymore, and maybe they don’t even do an e-mailed invoice. Maybe they’re doing it via portals. We’re seeing quite a few of those come through usually with larger customers, and they can dictate the terms under which the seller has to use their portal to get paid. So it’s really important to understand from your customer how they want to be billed. They may be refer back to that PO for some details in there, but also have your terms and conditions of sale as well. If you’ve given them 30 days to pay from receipt and their terms are something different, understand that. You don’t want any conflict with them but it is really important to get that invoice issued as soon as the sale has been completed, the goods have been delivered, all the services performed. Don’t wait. You’re just waiting longer to get paid.
What are some common invoicing mistakes?
We see a lot, unfortunately, and so we can talk with some experience about some situations that we’ve seen with our clients. Some common reoccurring mistakes that I’ve seen our clients run into is they don’t follow up with accounts payable. You want to do this to make sure that they’ve actually received their invoice and everything was billed out properly on that invoice. If you don’t reach out, especially if it hits day forty and your payment is late, it’s okay to actually call them before it’s due. It’s highly recommended. Another mistake is not putting the specific details that are required in the invoice body per the PO that you have. This will cause a payment delay. Not having the invoice amount match the purchase order amount will also cause payment delay. Make sure the invoice details are correct. You won’t get paid if there’s something obvious missing. Don’t be afraid to make an after sales call. It can be to the person that you worked with (the buyer), and you should ask who is going to handle processing of the invoice.
Why should you call your customer?
Some companies will have a portal where you can go on and see that your invoice is in there and set up in the payment processing you know and the queue for payment. Other companies you will need to call. They don’t mind you calling because they want those invoices paid promptly so it’s not sitting on their books. If you didn’t know who is processing the invoice before you made the sale, now is the time to find out because you want to make sure that invoice goes through their process and their system very smoothly. Eradicating mistakes is one way to make sure the process is smooth, but also don’t over complicate it for them. We’ve seen complicated payment process information on invoices, and they should be kept simple. The basic details and accurate information will get your invoice paid.
Where does your invoice go?
Also remember that when you do send your invoices, some companies have different levels where the invoices have to go. You may have to send it to a project manager first in order to get their approval and then they submit the invoice through to accounts payable. So, in those cases it’s smart to call and make sure that that project manager has done their job and sent it to accounts payable for payment. Otherwise, it could sit there for a long time until you make that phone call, and some of these people are super busy. You can imagine they’ve got stacks of emails and printed invoices.
What should you discuss in an after-sales call?
Maybe the invoice came in with the goods. You just want to get to the top of that pile, and you want to do it in a way that you know creates good feeling between you and your customer. You want to repeat sales, so don’t be put off by making a call asking if everything is okay. You are there to answer any questions, and it can be an after-sales call that builds a relationship. Verify the invoice information is correct, and verify that you are speaking to the right person about the invoice.
What are common staffing industry issues with invoicing?
We serve a number of clients in the staffing sector, and we can provide a great cashflow benefit in that sector. This means we see a lot of staffing company invoices. Specifically we’ve seen some issues with calculating hours. When you bill out your invoicing you want to make sure you’re billing for the proper type of services and time of services provided. Take a look at your time sheets. You want to make sure you calculate those hours properly for each day they work, and you want to have it clearly billed out on the invoice. This needs to be easily identifiable to the customer. Most customers like to see if they have overtime hours that are billed out as a separate line item because you are charging them a time and a half rate. You have to be very careful and meticulous when it comes to calculating those hours because unless you have something that is digital or electronic or is automatically calculating the number of hours that were worked, there’s a lot of manual process to that.
What happens if your staffing invoice has mistakes?
If you’re not careful, you make mistakes. This means your invoices will get rejected, and if you don’t call and find out why your invoice wasn’t paid, you’re not going to find out until way late in the process. If you’re in the staffing sector then consider an electronic system so that it all flows through. Then, your invoice is cut based on that information. If not, you’re going to be relying on the quality of the time-sheet. Was it signed off? Make sure that your AP clerk has got that information into your invoice and not just the number of hours, but was it at the right rate? So if there’s some overtime it’s very easy to make a mistake. Worst case scenario, your invoice gets rejected, and now you’ve got to redo the whole invoice for your customer. It just delays things for you to get paid. All of this information and these issues can be resolved by a little bit more upfront work and a meticulous approach to issuing those invoices.
How does invoice factoring affect the invoicing process?
As an invoice factoring company, we deal with invoices every day. It’s what we do. We advance funds on your accounts receivable, so we can really help you improve your process and point out some areas that maybe you need to look at. One of the underwriting things that we have to consider is the invoices themselves. We want to understand your business and make sure that those invoices are going to get paid just as much as you do.
What are obvious things companies can fix in their invoicing?
Across all clients and sectors, one of the first things you look at is the terms. Show me the purchase order. Show me the contracts. I’ll review that, and then I compare it to the invoice that’s actually raised. So when I look at that, I’m looking whether the work that was performed or billed for was actually included in the purchase or a contract. What is the price? Is there a different price than your customer and yourself had agreed upon? Where are the invoice terms clearly identified on your invoice? Do you reference your contract number or your purchase order number on the invoice? You want to make sure all these things are visible, otherwise it will create issues on the back end.
Why should you use a factoring company?
A factoring company will take a hard look at your invoices. They will have all that information reviewed, and if we spot any errors, we will identify them. We can make suggestions on how you can improve your invoicing so that you can get your payments faster. A factoring company gives you access to an expert like Angela and a team here at Eagle who are going to review all these things for you. You may have been doing business with a customer for quite some time, and maybe they’re paying you around 60 days and you can’t figure it out why. A fresh set of eyes will reveal something that you could do differently. That’s real simple, and even if you choose not to sign up with us, we’re happy to look through this stuff. Obviously we want you on board. We want to help you and provide business financing. Regardless, having us review your invoicing will be beneficial to you. We are invoice experts. It’s what we do, and we’re here to help you ultimately whether you sign up with us or not.
How can Eagle Business Credit help your invoicing process?
If you sign up with factoring services, we will provide you with a smooth cash flow finance facility. As part of the factoring service, we will actually reach out to your customers and wait for payment. That’s something that you don’t have to do on your part. A lot of times we’ll reach out within a couple weeks of raising the invoice just to verify they have everything set up for payment so there are no delays. We have seen several instances with some of our clients who were experiencing 90-day pay because they simply weren’t doing the proper steps that we’ve identified here today. We’ve been able to turn that 90-day pay into a 30-day pay. For us, that is a success.
We’re not a collections company. A lot of people get concerned about that. Really all we’re doing is ledger management and receivables management. We are going to help you by taking the burden of following up on your invoices off your hands, and you can free up a member of staff that maybe did that previously to do other things to help you grow. If you didn’t have somebody doing that previously, well now you’ve got the added benefit of making sure somebody’s here working on your behalf. It’s all part of the service. We have hundreds of customers with thousands of customers that we deal with, and they’re very familiar with what a factor does. Carrying the burden of managing your open invoices is all part of the process to make sure those invoices are going to get paid on time.