Invoicing is a crucial component of business. Having a slick, robust, reliable and professional invoicing system benefits both the business and the customer.
With the right invoicing system, payments are easier to track, balances are simpler to forecast and tax returns are easier to submit. Conversely, with a messy or disorganised invoicing system, business owners often find themselves getting stuck with cash flow problems.
Digital invoicing systems have transformed the process of invoicing with many invoicing tools also rolling business accounting and finance tools into one. This enables businesses to track their invoices alongside other finances, pulling up powerful graphs and reports to track revenue and cash flow.
When setting up an invoice system, there are a few things to consider:
Batch Your Invoices for Steady Cash Flow
All businesses are different but month-to-month accounting is relatively universal. Each month serves as its own accounting period - the last 2 - 3 days of the month (the ‘month end’) are ideal for rounding up and organising that months’ invoice.
Some businesses that carry out ongoing work throughout the month choose to send a single batch of monthly invoices, usually towards the end of the month.
If the business invoices when it sells products or services, then it’s typical to send the invoice once the work has been completed. In this situation, a business might send 2 or 4 batches of invoices each month. More regular invoicing might be important for businesses that need more regular cash flow throughout the month.
Get into the habit of leveraging the ‘month end’ - a day/weekend of account roundups and pre-organisation for the next month. This is when you’ll tot up your invoices and ensure any pending invoices are carried over and chased through into the next calendar month.
Traditionally speaking, invoices carry a 30-day deadline. This is the standard invoice period as detailed by Gov.UK, who says:
“Unless you agree on a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service.”
However, invoicing deadlines are becoming shorter. Xero says that some 75% of invoices now use a two-week deadline, for example.
Businesses can also simply opt for ‘due on receipt’. If the invoice is not settled to the agreed terms then it’s possible to raise a statutory demand for the unpaid invoice or issue a Letter Before Claim which indicates you intend to take the debtor to court if they fail to pay up.
Claims of up to £3,000 can be lodged in the Small Claims Court online. It’s always best to attempt to work things out with the other party.
To avoid any issues or disputes about payment terms and deadlines, always discuss with the client if you require an invoice to be paid sooner than the standard 30 days.
Use Invoicing Software
Invoicing software is an invaluable tool and resource for any business that sends and manages a lot of invoices. Some big names in invoicing software right now are:
It’s also easy enough to design and send invoices using Word or Google Docs, etc, but for the price, invoicing software is a worthwhile investment that keeps invoices centralised, secure and easy to access and download for later reference or archiving.
There are several benefits to using invoicing software:
- Auto-generate professional invoices neatly using company branding. Send them directly from the software to the email address of the recipient. Some invoicing tools tell you when the recipient has received and opened the email.
- Easy invoice reminders that trigger after a set period has elapsed. This is useful for keeping on top of late payments.
- One searchable database of invoices keeps everything in one place. Search by clients, keywords, products or services.
- Track invoice revenue using graphs, tables and other data. Analyse your cash flow and revenue changes throughout time to discover insights into your business’s finances. Sync data to other business accounting software for additional control.
- Track time, inventory and stock. Some invoicing systems also allow users to track their stock, inventory or time spent on project(s) for hourly work.
- Integrated payment options allow customers to pay businesses directly through the invoicing platform. This is quick and secure, also ensuring that payment data is synced up with the software for logging and later analysis.
Invoicing software also guarantees consistency and professionalism through each invoice. Branding the invoice adds a further professional touch and reminders can be scheduled and sent automatically.
Most invoicing software lets users save their clients and track their revenue. Breaking revenue down into graphs and tables allows business owners to visualise their invoice earnings throughout time. Some more advanced small business accounting software like Xero allows businesses to track all accounting associated with the business ranging from invoices and other revenue streams to expenses, payroll and more.
Dealing With Late Payments and Unresponsive Clients
It’s wise to come up with a strategy for dealing with late payments or unresponsive customers/clients.
Taking a ‘softly softly’ approach is recommended at first, but it can get tricky when a business is relying on that payment for its own cash flow, or worse, to pay off other debts.
Whilst you may choose to agree to earlier payment dates or choose ‘payment due on receipt’, statutory action cannot easily be taken before the 30-day period is up, unless the client agreed in-writing to pay before then.
Official action to recover debt or late payments includes issuing a statutory demand or issuing a Letter Before Claim, which precedes a small claim. The difference between the two is summed up by Orpington law firm CWJ.
An official Letter Before Claim drafted by a solicitor is often sufficient to instigate communication with clients or customers who are ignoring attempts to resolve the payment dispute. If the dispute does go to court, the court will take a dim view of either party avoiding contact or mediation attempts.
Summary: How to Set Up An Invoicing System
Many small businesses wonder how to learn small business accounting at their own accord. A robust invoicing system is of critical importance for any small business that has to account for and manage regular invoices.
Invoicing is reasonably simple on the face of it, but a poorly organised invoicing system can spell trouble for businesses that rely on invoices for their cash flow.
The key thing is to manage the regularity with which invoices are sent to clients. The more regular the pattern of sending and receiving invoices, the more predictable and management of the business’s cash flow.
Invoicing software is ubiquitous and offers a powerful means to schedule and manage invoices. Businesses can also integrate invoicing software into their accounting workflow.