More than ever, new and early-stage businesses need to focus on maintaining healthy cashflow in today’s competitive marketplaces. Here, we review some of the most common invoicing mistakes and how to avoid them in your small or medium enterprise (SME).
1. Muddling on with antiquated systems
Firstly, trying to survive with a paper-based manual system, or even a poorly designed and erratic computerised one, is not going to deliver the best chances of business success. Instead, new startups and fledgling enterprises need slick, effective systems that produce accurate, timely and professional-looking invoices – with ease.
The most efficient SME invoicing systems employ the latest technology such as mobile payment systems, as customers find their convenience attractive. Behind the scenes in the office, cloud storage and backup help to deliver a business advantage by preventing loss of financial data and invoice documents. Look at Xero, QuickBooks and SageOne amongst others.
2. Not considering appearances
Too many graphics and too much clutter just do not look right on invoices. A business needs to present a clear, professional image including a logo on the invoice so that at a glance, customers can identify with whom they are dealing.
Similarly, the invoice footer is a useful place to include the tagline, web address and a hyperlink to the same. Fortunately, most accounting software packages can do this for you with a little set up.
3. Missing important detail
Avoid time-consuming follow-up questions and possible delays in payment by checking these points:
- Invoices need to have a reference number which tallies with the internal sales ledger accounting system.
- In larger customer organisations and B2B (or wholesale) transactions, the invoice has to be addressed to the right department.
- The customer name must be spelt correctly.
- Products and services are best itemised – whether a flat fee, an hourly rate or expenses.
- There should not be any unexplained costs or unpleasant surprises for the customer.
- Business experts tend to advocate the inclusion of a specific pay by date*, instead of general text.
4. Not simplifying payment enough
The shrewd use of web technology delivers efficient and secure payment systems, a real advantage in SME invoicing. The following checks will help to smooth payments and support business growth:
- Payment pages need to be viewable on a wide range of mobile devices, not just on standard size monitors.
- Modern, intuitive functionality has become the expected norm. The logo and text should link (where relevant) to the main business website.
- Flexible and reliable servers (perhaps a cloud option) are crucial to power transaction pages. The user experience is key; page performance and reliability should undergo testing before going live. The aim is to provide a seamless transaction, prevent difficulties and avoid customer frustration.
5. Overlooking cashflow
Inadequate financial resources and poor cashflow can threaten the very survival of businesses. Invoices should be raised and sent out promptly – and any late settlement chased up.
If a business does not pay proper attention to its daily or weekly cashflow and the timeliness of payments, customers might perceive a lack of urgency and professionalism – even if misplaced. In addition to automated reminders, unpaid invoices can be followed up with a personalised response before placing a polite phone call if necessary.
Also, organisations can get into a downward spiral of difficulties if they do not have proper bookkeeping procedures. Maintaining accurate records of invoices raised and payments received is essential, therefore, for legal and tax reasons – as well as to provide a quick snapshot of the organisation’s financial health.
Another boost for cashflow
Finally, some businesses consider invoice factoring to improve cashflow and decrease the possibility of bad debt. In effect, the business sells its invoices receivable to a third party such as an invoice financier to receive payments earlier.
Invoice factoring services can also take responsibility for managing sales ledgers, collecting accounts receivable and chasing late payments on behalf of the company. Factoring frees up the entrepreneur(s) so that they can concentrate on their core business activity, instead of having to spend time on administration.
However, astute customers could notice the factoring details on invoices and wonder why such a system is in place. Additionally, as one might expect, the service comes at a cost – typically between 1 and 5 percent of the invoice amount. Nonetheless, improved cashflow reduces bank interest and charges.