A business goes through a lot right from the start to keep it’s head up among fellow competitors. Among the many problems faced, cash flow is the biggest issue that causes over 70% of start-ups to go down within the initial year.
The story is no different with established businesses. Poor cash flow has even led many of them to shut their doors. Since cash flow issues are unforeseen, no business is left untouched.
While there could be many factors governing the cash flow, invoicing happens to be the foremost thing in the list. Therefore, it is important for a business to invoice effectively and avoid any dreaded late payments. So, here’s a brief guide on how freelancers & small businesses can invoice effectively to keep their cash flow healthy.
Require An Upfront Deposit
This is probably my best tip to best manage your cash flow. To start any work, you should get an initial deposit and a signed contract. I usually require a 50% deposit or 30% for larger projects. See further business tips for designers here.
Get the Final Deposit Before Delivery of Files
To ensure you get paid, you can state in your contract that the full deposit must be made before delivery of final files. As long as the client is pleased with your work, this will ensure you will get paid. See tips on how to go about pricing your work here.
Make your Invoice Look Complete
Example Invoice
An invoice that looks complete is paid the fastest. Any invoice that you send, should clearly state that it’s an invoice, which should be written at the top. Other information may include company’s name, address, contact number, and business number if applicable. The name and the address of the client should also be there.
Your invoice should include the products/services provided, date of delivery, date of invoice, tax, interest charges, and the total amount charged.
I personally use Freshbooks and occasionally PayPal (see related PayPal fees article) but there are other great invoicing tools out there such as Invoicera and Harvest.
Send Invoices on Time
Clients are the main source of income for any company. However, clients don’t serve the purpose when they don’t pay on time. That is why, it is advised to send a prompt invoice upon the delivery of a service, or a product. An invoice shows your stand in the market, so make sure it looks professional. Plus, it should reach your client within time; this way you could make a mark on your client and get paid quickly in return.
Don’t Let the Flow Lose its Path
Your clients may start-off with timely payments initially. However, they are more likely to drift away from the path and start delaying payments. You must keep a check on this by levying late fee or interest charges, if a payment is delayed.
While this can also be tackled with a prompt payment invoice, you could also bring in a ‘promise to pay system’ within your terms and conditions, so that the client is bound to pay within a specified period.
Invoicing Partly
This is a great technique to ensure timely payments. This works in the favor of both the parties. Clients usually contemplate a lot before paying a lump sum amount. However, they won’t have to think much when asked for a partial payment. This would ease some burden off their shoulders. You, as a vendor would also be benefited with this technique as partial payments will keep your business running.
Mutual Understanding
The key to this point is that negotiation or terms of any kind should be clearly understood by both the parties. Of course, understanding and agreeing to each other’s terms and conditions mutually, would ensure a smooth process. If a client tries to move away from the previously mentioned terms, there’s a need to react before any further business deal.
Give your Clients a Reason to Pay, not to Delay
Remember, that your clients will always be up for excuses for an untimely payment. You could come across a number of excuses like, ‘My pet ate the invoice, could you send it again” or “I have sent a check, let me know if you don’t receive the payment within a couple of days”.
They’ll do anything to take a few days to pay. To avoid hearing excuses, you should send timely reminders, let’s say, 3 to 4 days before a payment is due. So, it gets the client to take immediate action. Another way to tackle this would be giving a discount on a timely payment encouraging them to skip excuses and pay on time. After all, it’s business. You might have to apply this sooner or later.
THIS CAN BE GHOST WRITTEN
Joshua Gallows represents the online invoicing software Invoicera- A billing software and time tracking software.
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