September 15, 2020

How Businesses Can Increase Cash Flow and Collections with Better Invoicing

It’s no secret that businesses want to be paid on time. Timely payments can help keep accounting up to date, ensure trust with vendors and put money in the bank. Unfortunately, sometimes payments are late or seemingly impossible to get, and in some cases the invoice is to blame. By following simple invoicing best practices, you can help improve cash flow and collections.

Invoicing Best Practices

  1. Invoices should be complete. This may sound obvious, but when it comes to invoicing customers many businesses miss the mark by leaving out relevant information customers need in order to pay their bill. Check that invoices include the items below to prevent delayed collections.
    • Remittance information, including:
      • Business name
      • Contact information
      • Remit to address
      • Methods of paying the invoice
    • Customer information, including:
      • Customer name
      • Contact information
      • Purchase order or job number, if applicable
    • Additional information:
      • Date of invoice, typically the date the invoice is sent to the customer
      • Invoice number, which should follow a sequential order. Request the customer references the invoice number when they remit payment.
      • Payment terms
      • Total amount due, line item amounts optional
      • Due date
      • If applicable: date of service, description of service(s) provided, proof of delivery, product description(s)

  2. Invoices should be timely. By delivering the invoice shortly after service(s) are provided, it increases the chances of collecting payment. When payments are late, a timely follow up call can also help shorten the cycle. Calling has been shown to be more effective than either e-mail or mailing statements and speaking to customers can strengthen the relationship. 

  3. Invoices should be easy to understand. Make sure to first identify the document as an INVOICE so it’s not confused with a sales order, purchase order or receipt.

    Are you offering a discount amount for paying on time? Save your customer the extra step of calculating it themselves and avoid payment discrepancies resulting from miscalculations. Also clearly explain the statement of late fees if you want to enforce such fees, and check with your state laws to ensure the fee rate is compliant.

    Don’t forget to clearly spell out the due date, amount due and terms. While payment terms should allow the customer to arrive at the due date, spelling out the due date makes the invoice easier to read and increases the chances of timely payment. If you have multiple payment options, like EFT or credit card by phone, to make it easier for customers to pay, make sure to detail the options.

  4. Invoices should be accurate. This includes routing the invoice to the correct individual or department and checking the billing address. The billing address could be different than the physical address. When possible, deliver invoices electronically for easier recordkeeping.

  5. Invoices should be professional. Each invoice should include your company logo or letterhead, follow a consistent format and ideally be limited to one page.

Establishing a credit policy can also help get your payments on track. Running a credit check on new customers, asking for credit references and starting out with cash in advance before moving to terms can help set expectations.

Anders Outsourced Accounting can help take the pain out of invoicing and make sure your financials are always available in real-time. Contact an Anders advisor below to learn more.

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