The Importance of Invoicing

I work for a small company and while I have many duties, the one I hate the most is chasing clients to pay their invoices. I feel like I am part of a collections agency. Part of the problem is that we are so busy that we forget to invoice our clients and hope that they will remember to pay us. I am so embarrassed when I have to contact a past client several months after delivery asking them to pay. How can I convince my boss to change our policy and what should our policy be?

Anonymous

 

Hi,

I love your question because it is an issue that plagues contractors and any business, big or small. If you want to convince your boss on the importance of having an invoicing policy, ask them if they aware that not invoicing is equivalent to flushing money down the toilet.

Unfortunately, you cannot avoid being a collections agent, but if you properly follow an invoicing protocol that builds relationships, you will not have to harass your clients. Here are the steps that I would follow:

 

1. Know Your Clients (KYC) and choose them appropriately.

You don’t have to do business with everyone who is interested in your product or service. Learn as much as you can about current and potential clients such as what other vendors or service providers are saying about them, their payment history, credit situation and values. Do not hesitate to ask for references and actually check them. Note, just because a client can handle payments on small orders, does not mean that they can handle payments on large orders.

 

2. Find out who really is paying the bill and be kind to them.

Become friends with the accounting department and determine who actually authorizes paying you. This person has so much power because they can let you know when they routinely pay their bills (e.g. every two weeks), the amount that they can sign off on without having to go to the big boss to get approval (e.g. a $500 vs $5,000) and they can potentially make sure that you get priority over all the other people they must pay because they like you.

 

3. In your invoice design, recognize that it is your last opportunity to show the value of your product or service to your client.

When designing your invoice, remind the client why they purchased your product. You may want to explain the number of people involved, the hours involved, past customer testimonials, and the intangible and tangible value you bring (e.g. high quality, etc.). Don’t forget to thank them.

 

4. Make sure that your client and your company is clear about the terms of your invoice.

Terms of payment do not have to be the same for each client, for instance, you may ask for cash upfront from certain clients before any work is done. Make sure to follow-up in a timely fashion with clients that do not pay within the allotted time frame.

 

5. For substantial purchases, break down the payments and invoice regularly.

Psychological, paying $1,000 a month is easier to stomach then getting a $3,000 bill at the end of 3 months, even though the sum at the end of the three months is the same. Break down your invoices into manageable chunks for your client to understand your value and pay you faster. If you are not getting paid, stop working; you can’t take promises to the bank.

 

6. After you invoice, get your client to confirm that they received the invoice. This can be done through email or by having them sign a copy of your invoice.

One of the worst things that could happen is a client telling you that they will not pay you because they never received an invoice, even when you are sure you sent one.

 

7. If possible, automate the process.

Considering how busy you are, try your best to streamline your process from order taking to invoicing. Excel is a great and cost effective tool to use for this purpose.

 

8. Keep in touch.

Perhaps a month later after your client has paid you, ask them how everything is going and if they are satisfied with what you have provided them. You can always automate this email and the fact that you care goes back into KYC (knowing your customer).

 

Good luck.

 

Rosie

Rosie Ogang, PFP, CPA, CMA

Rosie is a talented Senior Financial Analyst with a proven track record of providing comprehensive financial forecasting, budgeting, and analysis to senior management at Fortune 500 organizations. Her work helps improve organizational decision-making, which results in increased profitability.

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