How to invoice for your work

Customers who pay late are one of the banes of business life – but sometimes we can be our own worst enemies when it comes to getting paid. Research shows that errors in invoices typically cause delays in payment of anywhere between two weeks and two months. Being slow to send out invoices encourages customers to push payment into their next monthly cycle, so you get paid a month later than you expect. And customers "surprised" with invoices for more than they expect – however legitimate the charges may be – will hold off on paying while they query the amount.

Send complete invoices, and send them promptly “One of the most common errors small businesses make is not sending invoices quickly enough,” says Trish Kinahan, a director with Gloucestershire-based accountancy practice Hazlewoods, who specialises in advising small businesses. “Invoice as soon as the work is completed or goods sent. Don’t wait until the end of the month, because the customer won’t get your invoice until the second or third day of the next month. In larger organizations in particular, it won’t get processed for payment until the end of that next month, so you’re inadvertently extending your credit terms to 60 days.” Before invoicing, you should get confirmation from customers that you have successfully completed the work, and confirm the invoice amount, especially if it’s more than you typically charge them, or different from what you originally agreed. “They will appreciate a quick phone call to let them know, as opposed to being sent a cold invoice, and it’s also a chance to discuss whether they have more work for you in future,” Kinahan points out. When it comes to putting together the invoice, the Better Payment Practice Group offers bags of practical advice for producing invoices, advising that you should keep them brief and clear. Get rid of ‘clutter’ such as advertising and technical detail - the invoice is for accounts staff to use - and make sure you include:

• payment terms and due date
• the invoice date
• delivery date and method for goods or services
• a legible description of the goods and services
• price
• total payable
• purchase order, customer order or payment authorisation numbers

If you’re VAT registered, you also need to include your VAT number and split out the amount of VAT being charged. Smart credit management Good invoicing practice doesn’t stop once you’ve sent the invoice. “Be quick off the mark with your credit collection procedures. Follow-up overdue invoices as soon as they fall due, and send out statements on a regular basis to show customers what they owe you. It helps the other side understand what they owe you, and if there’s a discrepancy, it should prompt a call from them early on to sort it out.” If you work for larger clients, cut down the hassle of late payment by checking out their credit history before you start work. Kinahan says some banks and building societies offer credit checks as part of their business banking services, and there are also online services you can use. She adds, “Building good relationships with customers may also give you some idea of whether they’re likely to have trouble paying. If they are in difficulties, try to work with them to negotiate payments spread over three or five months rather than going straight to sending them a solicitor’s letter.” It’s very rare that legal proceedings are simple or speedy to conclude. Making invoicing easy Pulling all the information together to send out an invoice can seem like a chore, but it needn’t be. If you keep a job file for each piece of work or customer, you can collect together the information you need to send out the invoice as your work through the project, so it’s all to hand when you come to send out the invoice. That should include the customer’s purchase order, receipts for materials or other expenses incurred that you will recharge, timesheets, delivery notes, and confirmation from the customer that the work has been completed satisfactorily. You can save time by setting up a template in Microsoft Word to ensure standard items like your payment terms are always shown correctly. The template will also remind you to include vital details like the customer order number. An accounting package designed for small businesses, such as Microsoft Office Accounting, will allow you to pull data you’ve already entered in your accounts directly into the Word template. Good invoicing practice may not prevent you from still hearing the same tired excuses: “The cheque’s in the post” or “The director who signs the cheques is on holiday” from time to time. But sending out invoices which are correct and complete, sending them quickly, and following up on unpaid invoices will help you avoid much of the stress of waiting for your money to arrive. First published on Microsoft’s Small Business Centre www.bcentral.co.uk