5 Tips to Mastering Invoice Management
As a small business, cash flow is one of your most important concerns. Small businesses generally do not have large cash reserves to rely on if customer payments are slow, so managing your accounts receivable is critical to the financial health and growth potential of your business.
Invoicing is at the heart of your accounts receivable process. If your invoicing process is timely, comprehensive and accurate, you have a better chance of managing your cash flow well.
1. Automate Your Billing Process For Speed and Accuracy
You may think that billing automation is for bigger businesses than yours. The truth is that small businesses have a lot to gain from automation. Paper invoices are a headache to manage. They are time-consuming to produce. They can get lost on your end or at your customer’s end. It’s difficult for your staff to track when each one was sent and when, or if, it was paid. Manual processing leaves a great deal of room for human error, which can have serious consequences for small businesses. Your invoicing software should recognize potential errors like duplicate bills or missing payments and keep you informed.
2. Create a Comprehensive Checklist of Information for Each Invoice
Your billing software should prompt you to enter all the critical information. This ensures that your customer has everything they need to get your payment squared away:
- Invoice Number
- Invoice Date
- Payment Terms: how soon you expect payment; or Due Date: specific day you expect payment
- Invoice Template (for a professional look)
- Sales Representative (if applicable)
- Details about the product or service you're invoicing
3. Set Up Invoice Timing That is Beneficial to Your Cash Flow
For large projects, ask your client or customer to pay you in a series of partial payments rather than waiting for any payment until the final completion. You can request monthly payments, for example, or payments when each stage of a project has been completed.
If you have clients with multiple ongoing projects or orders, set up reasonable intervals, like weekly or monthly, to bill. Scheduling regular invoicing will set up expectations with your customer. When they expect invoices at a particular time, they are more likely to respond in a timely manner, potentially shortening your accounts receivable time period.
4. Make Sure All Payment Terms Are Agreed on in Advance
Customers are more likely to pay promptly when they know what is expected in advance and have agreed to the terms. Many small businesses send their terms with their first invoice, but it is much more effective to have that conversation at the beginning of a project or relationship.
5. Monitor Your Accounts Receivable Efficiency
Once you have a good system in place, it’s important to keep monitoring it. You want to be sure you have the best possible system for your business—one that keeps your cash flow as healthy as possible. Part of this is checking to ensure you’re sending your invoices regularly, or as soon after a sale as possible. Then look at other parts of the system. Think about providing options for electronic payments and review your terms regularly. Do you need to offer incentives for quick payments, late fees for slow payments, a change of due dates on your invoices? Every week—even day—counts when you’re a small business looking to thrive and grow.