You might think you're on top of invoicing. And you might be making sure you get paid - eventually. But a tight invoice system is a golden key to improved cashflow. Get that money in on time, (almost) every time, or even earlier than you expect it, and you have more cash in the bank. It's as simple as that. Let me break it down for you with my own little mantra for perfect invoicing. I like to remember my five P's:
Issue your invoice as soon as the work is done or the goods received. Sure, it's tempting to let that paperwork stack up on your desk for a week or two. But every day counts when it comes to cashflow. Every day you haven't even asked to be paid (let alone worried about being paid on time) is another day you struggle to find the cash to pay your bills, your salaries, and finance the next chunk of work you're meant to be doing to grow the business.
Have a system set up so you get that invoice straight out - ideally within a day or two or the work being completed or good received. There are now some fantastic tools that let you send invoices from your mobile, so you can invoice whether you're on a train or at your desk. If you seem to never have time to send invoices immediately, make another member of the team responsible. You might also consider a virtual PA.
Make sure your invoice clearly states your payments terms, and reiterate them again (politely) on the compliments slip or email that you send with the invoice. Don't leave any room for error, because a client that assumes you have 60-day terms when you actually need 30-day terms can leave you seriously short on cash for a month. And a month is all it takes to go out of business.
One little typo on an invoice can mean it won't get paid for another few weeks - which is terrible for your cashflow and cashflow management. So get pedantic! Double-check names, addresses, descriptions of the work or goods, purchase order numbers, and, crucially, the amount. Itemising costs as far as possible helps to avoid the cutomer having to ring up to make queries, which can hold up payment.
The phone is your friend when it comes to invoicing. A polite call or email four or five days after you've issued an invoice, just to make sure it's been received if you haven't yet heard anything back, ensures nothing will fall through the cracks or get forgotten. Another call a day or two before payment is due - just "to give a gentle reminder" - will help your chances of receiving payment on time. And if your client is late paying, don't be afraid to call them to tell them. You obviously don't want to be annoying or angry, but calling every few days after payment was due will keep you in mind.
You'll need a good system in place to make sure you're aware of invoice payment deadlines and reminder dates. Using your computer calendar or a paper diary can really help here - mark in all invoice payment deadlines and have rules for when you will remind clients about them and chase them, then put in all those dates too, along with the right phone numbers. A few minutes doing this every time an invoice is issued is well worth it for the prompter payment and better cashflow it enables.
Some businesses have got canny about prompt payment, and offer discounts for invoices paid early. This takes a bit of trial and error: you need to give a great-enough financial incentive to make paying early worthwhile, but don't want to erode your margins. If you can afford to play around with a few different models to see what works, it's worth a shot.
Explore invoice finance. This service, offered by banks such as NatWest, among others, allows small businesses that qualify to access up to 90% of the value of an invoice immediately, then leaves the payment chasing to the third party that offers the invoice factoring. The balance of the invoice is paid when the customer pays, minus the bank or other provider's fees. In short, it saves you time and hassle.
Happy cashflow management!