SmartCompany, January 24 2017:
Sixty percent of invoices are paid late, a recent global study conducted by MarketInvoice found. Furthermore, of the 80 countries surveyed, Australia was the worst for paying invoices on time.
Let that sink in for a second.
Hopefully these stats makes you feel a bit better if your customers are in the habit of letting due dates slide. But steady cashflow is imperative to the success of your business and can mean the difference between making it past your first year or packing up shop. Given this, here are a few tips to help you whip your customers into shape and build a healthy bank balance.
The rules of engagement
When engaging with a new client, it’s important to clearly set expectations for all parties involved. This is known as your rules of engagement. This may be verbally discussed, listed on your quote, or included in a contract you ask your client to sign before work commences.
It should contain information about the following:
How you charge for your services
- Will you bill your client by the hour or agree on a set price for the job/project?
- Will you ask for a deposit before you commence the work?
- Will further payments be made after agreed milestones?
What your payment terms are
- What forms of payment do you accept? For example, credit card, PayPal, or direct bank deposit.
- When do you expect payment to be made after completing the job? Will you allow monthly payments, fortnightly or weekly?
- Will you charge for late payments? If so, how much? Ten percent of the total quote or a flat rate?
Your rules of engagement will be essential if you need to follow up payments and will help you avoid the client trying to avoid payment by saying, “I didn’t know about that”.
Visualise the flow and follow up
A process map and series of templates will help you move your invoices through the flow quickly and efficiently, and will help you keep track. It may look a little something like this:
- First invoice;
- Phone call to advise invoice is overdue, plus a reminder invoice with an extension of seven days;
- Second reminder invoice;
- Phone call, plus a past due date reminder;
- A final reminder; and
- Notification that the debt has been moved to external debt collection agency.
Set aside one day per week to make calls to follow up and mark your follow-ups in a calendar to help keep track.
The look and language of your invoices
There are certain requirements you must adhere to when issuing valid tax invoices. These requirements are set out by the Australian Taxation Office and state that the following seven pieces of information must be on your invoice in order for it to be considered valid.
Requirements for invoices under $1000
- The words “Tax Invoice”;
- Your company/business name;
- Your Australian Business Number (ABN);
- The date the invoice was issued;
- A brief description of the items sold or services rendered, including the quantity (if applicable) and the price;
- The goods and services tax (GST) amount payable (if any); and
- What items the GST applies to.
If the tax invoice is for sales of $1000 or more, you also need to include the buyer’s identity or ABN.
Aside from the government requirements, there are other elements you should consider when sending your invoice.
The submission of your invoice
If this is your first invoice for an ongoing client, then you may wish to attach a cover letter, introducing yourself and the services you provided. That way, you start to build a relationship with the accounts receivable department.
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An invoice number
It seems logical, but not providing an invoice number can wreak havoc for getting paid on time. If there is no code to reconcile accounts on both ends of the transaction, things will get hairy at tax time. There are a few different ways to provide an invoice number.
You can choose from:
Numbers in order as your jobs continue. For example, 1,2,3,4,5.
Date driven number sequences that are a combination of the job number and date. For example, 20161207-00001 (YYYYMMDD-JOB NO)
A combination of the job number and unique projection identifier. For example, 00001-GreenFields (JOB NO-PROJECT NAME)
The presentation of your invoice
Just because your invoice is a formal document doesn’t mean it has to be ugly. Used correctly, an invoice can also form part of your marketing strategy. Design it in line with your branding and don’t be afraid to include some creativity. Just make sure it’s still legible and easy to interpret.
Reap the benefits of the “recency effect”
Research shows that people tend to remember and take action on tasks that are fresh in their mind—it’s called the “recency effect”. As time passes, details are forgotten and the sense of urgency reduces.
Remember that test you studied for in Year 9 biology? Probably not, but you probably (hopefully) did remember what you studied the night before. You more than likely forgot half of what you learned mere weeks later. Without practice or reminders, information gets packed-up and stored away to make room for new, fresh information.
So what does this mean for sending invoices? Well, if you want to get paid on time, the best chance you have is to send your invoice to your client immediately, while you and the services you provided for them are still fresh in their mind. If this fails, sending reminders in a timely fashion will hopefully get your invoice back to the top of the pile, adorned with a “PAID” stamp.
Tools you can use to generate invoices
Thankfully there are many automated tools to help manage your accounts, including cloud-based products that enable you to access your information anytime, anywhere.
Using a cloud-based tool means that your whole financial world is connected. As long as you have an internet connection, you can access all your financial tools and share data with your accountant. You never need to worry about purchasing new software, because your cloud account will automatically be updated. In return, you pay a monthly subscription fee.
These tools will help you send out estimates, quotes and invoices and also provide an automated dashboard to tell you exactly what is outstanding and from whom. They also directly integrate with many account keeping programs, making everything a breeze at tax time.
If you are not quite ready to commit to a fully automated, paid service, then you can knock up a pretty decent invoice using other platforms, such as PayPal. You also have a basic overview of what funds have been received and what is outstanding.
Chasing your money
It may feel like one of the horrible parts of running your business, but chasing what is yours is important. After all, it’s only fair that you are compensated for your services rendered.
The way you manage your overdue accounts will set the benchmark for all future interactions. If you come across as passive and unconvincing, then your customers will have no qualms letting a payment pass the due date. Similarly, if you make recovery attempts and threats, such as legal action, but never follow through, then your customers will assume you are bluffing and continue to take advantage of your timid nature.
A final reminder email could look something like this:
Subject: Invoice Number
Dear (customers name)
I write again regarding the above, which remains outstanding in the amount of $(amount).
This account is past our acceptable trading terms and we are therefore commencing immediate further action.
If payment in full or at least 50% of the amount owing is not paid by [time] [day] [month] [year], the matter will be passed on to a debt recovery service.
Our bank details to make payment into are:
Please make payment urgently before this deadline, to avoid any further debt collection action. I ask that you email me once payment has been made, so I can update your account. This is extremely important.
I appreciate your business and would like to continue to have a good working relationship with you.
Luscheyne Mellon is co-founder of Veromo.com, an Australian startup that offers business setup and registration services.