This is Part 1 of a Business Essentials Series: Part 2
If you are a business selling to other businesses on credit terms, you will be issuing invoices. At minimum, a business invoice details: what you are selling, how much you are selling it for, when you have sold it, any additional fees, and when you will be paid. This invoice is a written agreement between the buyer and the seller of the goods or services. This documentation of a sale or agreement is a crucial part of your business’ accounting or bookkeeping system. Business invoicing is necessary in order to get paid by your customers.
Here are the essentials of a business invoice:
- Names and Addresses
- Sale Details
- Payment Terms
The Essentials of a Business Invoice:
Include the date that the invoice is created, the date that payment is due, and the date of shipment and or delivery. You will want to document the transaction date in case there is any dispute in the transaction or payment. Having a paper trail will only help your case.
Names and Addresses
List your company’s name and their company’s name. Differentiate between who is paying and who is receiving payment. This keeps both parties on the same page about the transaction in case any issue arises that needs handling.
Having your business contact information, including the specific employee responsible for overseeing this account, is crucial. If there are any disputes or issues with the transaction, your business is easily accessible to resolve the issue. In addition, be sure to spell all names correctly.
Detail exactly what was delivered. Include quantity, type, and any other identifying properties of the transaction. In addition, list the receipt number, invoice number, or some other identifying number on the invoice. This number will be a huge help when collecting the payment.
A business invoice includes how much is owed and the credit terms of the order. Typically credit terms for businesses are 30 days, but that can often be extended to 60 or even 90 days between transaction and payment.
Business Invoice Best Practices
- Send an invoice immediately after completing the job
- Send the invoice to the right contact (Accounting department or specific purchaser)
- Use a digital invoice for faster delivery and payment
- List any late fees or other penalties for non-payment
When to Send an Invoice
Depending on the nature of your business, you may want to send an invoice immediately to your customer. Typically you would send an invoice immediately upon completing a service or delivering a product. Some larger projects may require sending multiple invoices at the start, middle, and/or end of the project. The longer you wait to send an invoice, the longer you will wait to be paid. If the client is a repeat customer every month, you might consider sending monthly invoices on the 1st or 15th of each month. The most important part of sending an invoice is actually sending one and sending it as soon as the work is completed or goods delivered.
How to Send an Invoice
You can send a physical invoice, digital invoice, or a combination of the two. Emailing an invoice is advantageous because the delivery is immediate. You don’t have to wait for a physical mailing process, but be certain you are sending the invoice to the correct address. A great practice is calling your customer to confirm receipt of the invoice. This makes sure all parties are on the same page about what, why, and when payment is due. An accounting software can automate your invoicing process. This means you won’t forget to send an invoice or follow up on the invoice with the automatic prompts. Be sure to monitor your receivables though. You don’t want to automate your invoices and then never collect on them.
A physical invoice requires mailing out the document after delivering the goods or completing the service. The downsides to this method is that it may take a few days to be delivered, is less secure, and is easier to mess up. Mailing addresses are only a little more complicated than an email address, but one mistake may mean the invoice never reaches the client. The benefit to this method is that a lower percentage of customers need a reminder to pay the invoice when receiving via mail.
How you choose to send your invoices is up to you, but remember that speed is of importance. The faster your invoice is received by the customer, the sooner you can be paid. When waiting the duration of credit terms, it’s important to minimize the amount of time it takes to send your invoice to your customer after completing a project.
How to Make a Small Business Invoice
A web search for invoice templates is a good start if you’re unsure of how to format your invoices. Having “INVOICE” clearly at the top of the document is also smart. You want to be clear about what type of document you are sending. The above essentials should be included to cover all your bases. Additionally, if you are using accounting software, they typically include invoice templates and automation to make your invoicing process even simpler. Don’t send a document that can be edited. Send in a PDF format or online format that cannot be changed by your customer. We want to believe that a customer would never alter an invoice, but it’s best to protect yourself from this possibility anyways.
How to Collect Invoice Payment
Some automated services for invoicing feature a payment button right on the invoice. The benefit to this is that your customer has no trouble trying to pay the invoice amount. You don’t have to have a payment portal quite as visible or easy as this, but it’s best to make invoice payment as simple as possible for your customer. Be sure to clearly list payment options such as a mailing address or PO box for a check, a link to an online portal, bank account details, or invoice factoring company. The easier it is for customers to pay you, the faster you will be paid.
Call your customer for confirmation that they received the invoice after you have sent it. Additionally, call your customer closer to payment deadline to remind them of the invoice payment due date. Sometimes people forget, and calling or emailing a gentle reminder that is short, courteous, and to the point will spur action from your customer. If this all sounds like a lot of work, remember that getting paid is such an important part of your business. You could consider outsourcing some of these roles to a third party receivables management company. What that means it that while you run your business and complete more sales, an invoice factoring company advances payment to you and handles the collections process for you. Not only are you saving time and resources with the invoicing process, but you are saving time and resources with the collections process. The cool part is that managing your receivables is just a free bonus to a factoring facility. A factoring facility is simply a cash flow solution that pays your company on the same day as you invoice your customer. Then the factoring company waits the credit terms and follows up with collecting the invoice amount from your customer. The credit risk management, collections process, and receivables management are all burdens of the factoring company, not your business!
Business Invoice Factoring
After drafting your invoice and sending a copy to your customer with all the essentials, now you have to wait for customer payment. This waiting period can tie up your working capital and prevent your company from making more sales. Not only is there going to be a strain on your cash flow, but your time will be spent collecting on that open invoice as well. Enter: Eagle Business Credit. We are a factoring company that offer accounts receivable funding to eliminate the time between transaction and payment. When you sell your receivables to a factoring company, you make the sale, you deliver the goods, and we pay you the invoice amount less a factoring fee. Now you have the available cash to keep making sales, hiring employees, and growing locations. Why wait to get paid?