Running your own business involves some complex business decisions and tasks that seem pretty basic and completely tedious. Take invoicing, for example. It seems like a straightforward task to send your clients a bill for what you did for them and then receive payment in return. The invoicing process seems so simple that a business owner can start to dread when it’s time to invoice. Despite the simplicity, there is a lot of potential for making mistakes that could cost your business revenue, cash flow, and profitability.
Below are 25 common invoicing mistakes and tips on how to avoid making them:
1. Relying on a paper invoicing process
Paper invoices take too much time and are a waste of your already limited resources. You don’t want to be spending money on paper, envelopes, stamps and ink cartridges when you can save expenses by switching to an online invoicing system. The amount of time that goes into creating and sending the invoice could be better served on other aspects of your business. Plus, the extra time that paper invoices take to get to the client could slow your cash flow – especially if the paper invoice gets lost in snail mail or buried under a pile of papers on your client’s desk.
2. Using Word processing software to produce your invoices
If you email your invoice to your client as a Word document attachment, you are still taking too much time away from what could be used to attract new business or generate income. In addition, these Word document invoices usually don’t look very attractive or provide a good system for tracking, especially as your client base expands. Consider using software that provides a greater design element to the overall invoice.
3. Not having a professional template
If you don’t have a graphic design bone in your body, it is hard to design your invoices from scratch, and you risk sending the wrong message to clients about the quality of your work. Rather than reinvent the wheel (and do so badly), use existing professional invoice templates offered by many online invoicing or payment processing companies. These templates are often free and provide a design that is sure to fit with the look of your business.
4. Skipping out on branding opportunities
Your invoice is a chance to remind your clients about your brand with a logo and tagline. If you don’t have these brand elements for your small business, now’s the time to get them. Putting them at the top of your invoice makes it easy for clients to see who sent them the invoice and reiterates those brand attributes you are trying to get across. Most invoice templates offer a drop-and-drag or upload feature that allows you to easily insert your brand.
5. Not marketing yourself through your invoices
Your clients will always read the invoices to make sure everything is right so whether it’s the end of a project with a client or you have additional skills that you want to advertise, invoicing becomes a marketing opportunity that you can’t let slip away. You can include brief messages about what you can do, company news, or case studies of how you just helped another client on your invoices.
6. Not creating a contract or agreement form with each client
If you decide it’s not important to have a contract or agreement, you may find that getting paid could become difficult, even impossible, with some clients. In the process of trying to get them to pay, you also do not have any legal basis to take them to court if they refuse to pay because there is no agreement in place. By establishing a contract before work begins, you and your client will know where you stand and can remove the concern from the equation. It allows you to get on with the work, knowing that your client has agreed to payment terms, and the client can relax knowing that they have an agreement about what you will do for them.
7. Not having clear terms
Even if you have a contract in place, it’s a mistake to leave these basic payment terms off your invoice. All invoices should state when the invoice is due, how they can pay, and any charges or discounts that may be applied if paid late or early. This reminds the client of your agreement since they may have signed and then forgot the terms.
8. Not explaining fees added onto the invoice
No one likes surprises that involve paying more money than they originally anticipated. You can’t just tack on fees to a bill without letting your client know what they are for. If the project scope increases or if they miss the payment deadline, clearly describe why there may be a late fee or fee for additional work. Your client may not want to pay the invoice until they find out more about these fees.
9. Not itemizing the invoice costs
Like the lack of details on any extra fees, leaving off what each cost is for and what the work entailed can also slow payment. A client always wants to know what they are paying for and needs to keep their own records on various projects. They may also want to itemize deductions they can take from what they pay you, so detailing the information is very useful. It could encourage them to pay you faster.
10. Having wrong information or bad calculations
We’re all human and make mistakes when we type. In a rush, we may miss typos or, even worse, miscalculations. Any type of information that a client catches that is wrong will mean that you will need to send a revised invoice. That’s extra time that keeps you from receiving payment. When you use an online invoicing system, the software includes tools like spell check and tools that do the calculations for you.
11. Sending the invoice to the wrong person
When you don’t check on your client’s accounts payable system, you may end up sending the invoice to the wrong people or not including everyone that the client wants to approve it or handle payment for it. When you create your agreement and begin working together, make sure you ask who should receive the invoice and get all the necessary contact information. Online invoicing systems often provide a way to include multiple recipients and include a database that automatically brings up names and contact information.
12. Not numbering your invoices
As you grow, numbering your invoices becomes a necessary tracking system. Not only does it help you track what is outstanding and what has been paid, but it also enables your clients to track their payments. Online invoicing systems automatically update an invoice number with each invoice you create, making this easy to correct.
13. Not personalizing your invoices
Besides your logo, you want to add your information as well as your client’s full contact details. You may also want to add a personalized message to the client so it doesn’t feel like your invoice is mass produced without any thought to your clients and their project work.
14. Not acknowledging differences in currency and taxation with international clients
When you decide to expand your small business empire to other countries, don’t assume that your international clients will want to work in your currency or understand your taxation system. Instead, you have to adjust to their needs and requirements. This may even mean producing the invoice in their language. Use an online invoicing system allows you to convert to a range of languages, currencies, and taxation systems. Your clients will appreciate this adjustment because they can instantly see what they owe in their own currency.
15. Waiting to invoice
Some small business owners feel like if they invoice right away that their clients will think it’s all about the money. Well, in some ways, it is about the money and there’s nothing wrong with that when you have produced the work your client expected. It’s business after all. Go ahead and invoice as soon as you have completed the work. That puts the ball in your client’s court and most likely will get you paid faster. Waiting to invoice means you are willing to wait for money. Your bank account and cash flow may not share that opinion so it’s best you listen to them and fire off those invoices.
16. Forgetting to invoice
Wearing many hats as a small business owner combined with your personal obligations means something is bound to slip your mind, and invoicing could be one of them. While it seems crazy to think you would forget to get money from someone, it does happen more than you think. If you get paid the same each month from a client, one option is to establish recurring invoices, and your online invoicing system will automatically send the invoice for you.
17. Not backing up your invoices
When you don’t back up your invoices, life is sure to happen. Your computer could have a melt down, your computer could get stolen, or Mother Nature may decide to wreak havoc on your computer. In all of the above cases, if you don’t back up your invoices, they will be lost forever. You can avoid this by using a cloud-based online invoicing system, ensuring a backup copy of every invoice is saved.
18. Not sending reminders for unpaid invoices
Just like those small business owners who are afraid to send their invoices immediately, there are those that hesitate on reminding their clients that they need to be paid. Remember that you did the work and you deserve your payment, so there is nothing wrong with a friendly reminder. Even better is having an online invoicing system that sends automatic email reminders until the invoice is paid.
19. Not charging late fees when clients finally pay
Sometimes you need to retrain your clients or let them know that certain behavior is not tolerated. A good way to do this is to add on a late fee to your invoice. Just make sure you actually charge this late fee rather than just listing it under terms. One or more months of paying extra for being late can turn a late paying client into an on-time paying client.
20. Not incentivizing clients to pay early
It’s also a good idea to use positive reinforcement strategies to get paid early to top up that cash flow. You can add incentives to the payment terms on your invoice. For example, consider giving a percentage discount or some type of promotion if the client pays your invoice early. This is one of the most effective ways to increase your cash flow, plus your client will be happy that they are getting some type of deal.
21. Not embedding a payment link within an invoice
If you don’t make paying the invoice as convenient as possible, then you may hold up payment. Using an online invoicing system will allow you to embed a payment button or link within that invoice. All your client has to do is click that button or link and they can pay online. Make it as easy as possible for the client to pay you and they will do it faster.
22. Not offering multiple payment acceptance methods
Not every client wants to pay the same way, so it helps to provide as many payment acceptance methods as possible. If you only offer one, it could mean a longer wait time for payment or you could lose that client to someone else that does offer multiple payment methods. Consider partnering with a company that helps you provide payment methods like ACH, debit and credit cards, and even cryptocurrency if that is preferred. For example, if your client is a millennial entrepreneur, they may like that you offer a way for them to use their digital wallet to pay.
23. Forgetting to say “thank you!”
Don’t make the mistake of letting your manners go just because you live in an increasingly impersonal world. Clients like to know they are appreciated and including a thank you message on every invoice you send is a simple, yet very effective way, to engage with your customers.
24. Not knowing your clients’ pay cycles
Each client has their own cash flow to manage so they like to set pay cycles that enable them to maximize that. It’s a mistake to disregard those preferences and just send invoices when it suits your own pay cycle. Work on synching these pay cycles when you create that contract or agreement prior to working together. While each client may have their own payment cycles — some preferring monthly invoicing while others want to do twice a month — you can use your online invoicing system to track those pay cycles to facilitate billing and payment.
25. Not integrating your invoicing system with other available tools
One of the biggest mistakes small business owners make is to not leverage the ability to integrate tools together to take a lot of the work out of tedious, but necessary, business tasks. For example, you can use a financial accounting platform that integrates with your invoicing system, CRM platform, time tracking app, and project management tools. Integrations like these mean you don’t have to duplicate many tasks and can share information between systems to speed decisions and projects.
Now that you know these common mistakes that small business owners make with invoicing, you have no excuse to make them. Use these tips to avoid the major invoicing mistakes outlined above, and you’ll have an efficient, productive, and profitable system for invoicing, payment acceptance, and cash flow.
About the Author
John Rampton is an entrepreneur, investor, online marketing guru, and startup enthusiast. He is the founder of the online invoicing company Due. John is best-known as an entrepreneur and connector. He was recently named #2 on Top 50 Online Influencers in the World by Entrepreneur Magazine and a Blogging Expert by Time. He currently advises several companies in the San Francisco Bay area.