Cash flow is key to the success of your business and a healthy cash flow begins with sending invoices to your customers and receiving payments from them on time. The #1 delay in receiving payments is due to mistakes and omissions on your invoices. There is no need for you to contribute to slow collections—your customers will generally dictate when you get paid, but clearly, don’t do anything that will give them an excuse to pay you more slowly than necessary. Not only do invoice errors add friction to your relationship with your customers, but errors of any type jeopardize your credibility with your customers.
Fortunately, it’s easy to avoid common invoicing mistakes.
- Missing payment deadlines
When companies send invoices, a common error is to omit important information such as the due date. The due date of your invoices should correspond to the purchase order or contract issued by your customer. Unilaterally stating an arbitrary due date, like, “due on receipt” or “Net 30 days” may cause confusion for your customers whose payment terms may be longer. Don’t leave these things to chance. The time to negotiate when you expect to be paid is during the negotiation of the purchase order or contract—and then make sure those terms are stated in writing.
- Be open to accepting any form of payment on your invoices
Increasingly, customers are demanding flexibility in payment methods. Less than half the payments made by one company to another is paid by check. Be clear you are willing to accept credit card payment, wire transfers, ACHs, and other forms of electronic payment. Limiting your customers’ payment options will surely slow your collections, especially if your requirement is an exception to the normal manner your customers pay their vendors.
- Avoid over- or under- billing customers
Quality control is critical in the invoicing process. A sure-fire way of slowing payment is invoicing for the incorrect amount. Sophisticated customers have systems in place which eventually detect repeated over- or under-billing. The problems with over- and under-billing should be obvious. Overbilling customers will lead to the eventual realization by customers that you are either trying to cheat them or your billing department is incompetent. Generally, if customers do overpay invoices, when the overpayments are discovered, customers will not only lose faith in your company, but they’ll also demand their money back—often by reducing the amount they will pay you (a practice known as “offsetting” invoices). Repeated underbilling results in the obvious result of generating less cash flow and less profitability for your company.
- Poor Invoicing Follow Up
Just as important as sending out your invoices accurately and timely is the critical need to ensure timely collections. Have customers overlooked the bill? Do they have concerns about the services that you’ve itemized? Are they struggling financially and likely to put your invoice to the side? If your payment due date has passed and you’re not following up on that invoice, you’re hurting your business.
Collection calls are many business owners’ least favorite task. It’s human nature to delay performing unpleasant tasks, especially tasks that may alienate customers. However, following up on invoices should start even before the payment due date with a simple confirmation to ensure the invoice was received. A gentle reminder may be warranted if the due date comes and goes. Generally, follow up “status” calls should be placed weekly. This should be a routine part of the invoicing process as without collections, there is no need for invoicing.
Businesses can avoid invoicing mistakes by outsourcing their billing, funding, and collection needs to invoicing specialists known as factoring companies. Factoring companies have rigid policies in place to ensure proper invoicing and collections activities are taking place—plus, they eliminate cash flow worries by actually advancing money against the invoices. Leading factoring companies will have their friendly and experienced collections professionals maintain steady communications with your customers’ accounts payable personnel and help reduce obstacles to collecting payments.
A Trusted Factoring Company Since 1993
When you’re ready to improve your cash flow and reduce invoicing headaches, contact Interstate Capital, one of North America’s most trusted factoring companies since 1993.