All businesses need to ensure that they maintain a healthy cash flow. One of the easiest ways to do so is to have your invoices paid on time.
When clients consistently pay invoices late it can hamper your business’ ability to grow. An effective way of reducing late payments is to keep your invoices clear, well structured and consistent. This includes having a set of terms and conditions and a reasonable due date.
What to include in an invoice?
Often one of the reasons why you have to chase overdue invoices is because they have information missing. When you ensure that your invoice contains all the relevant details it’s more likely to be paid sooner.
Here are some of the essential details to include on your business invoices:
– Make sure that it’s titled invoice – then it’s clear straight away what it is.
– Date of the invoice
– The name of your business and relevant contact information
– The client’s business name and contact details
– An invoice number
– Details of the work carried out / service provided – split down into sections where appropriate
– The full amount of the invoice – including any discounts / VAT etc
– Payment details, including bank account information
– Payment due date
– Terms and conditions of your invoice
Once you have set up the invoice template, it’s simple to amend this for different orders and clients. This will also make your invoicing procedure much quicker and more efficient.
Why are invoice payment terms important?
If you don’t put a clear due date on your invoices you’re starting off on the wrong foot. A client needs to know how long they have to pay before any late payment fees can be charged. It will also help the accounts department schedule payments.
When you’re choosing payment terms for your invoices it’s important to go with a date you’re comfortable with. Make sure you consider any costs you’ll have to pay out and when these are due, as well as how likely the client is going to pay within these terms.
You may want to consider adding in a discount for prompt payment. Don’t forget to outline penalties and interest for overdue invoices.
When setting payment terms, it’s beneficial to consider a client’s accounting system. For instance, some larger companies will have a standard 30-day payment cycle. It’s unlikely that your invoice will be paid any sooner, regardless of your due date. However, knowing this will help you to plan your cash flow more effectively.
The importance of payment reminders
Even with a well-structured invoice, there will still be times when you need to chase overdue invoices. This can be for a number of reasons – from maintaining cash flow to problems with their accounting system.
Here we look at some top tips for chasing late invoice payments.
If you need help to improve cash flow and reduce late invoice payments, contact us today to find out more about our credit control services.