Opinion

5 things entrepreneurs and small businesses need to get right when invoicing

Damon Anderson, director of operations at Xero, supplies his masterclass tips
By
‍Damon Anderson

At its most basic level, an invoice is a request for payment. It lists the goods or services that have been supplied to customers, and what they owe in return.

For entrepreneurs and small business owners watching their cash flow closely, invoicing is a crucial process. If you don’t get it right, you won’t get paid. Invoicing mistakes could lead to a customer refusing to pay, or paying the wrong amount, potentially causing embarrassment, frustration and delays for both sides.

However, invoices are also important tax documents. Once the payment is received, it’s easy to forget about them, but copies must be kept to show all revenue earned and any tax collected on the sale. This creates the added pressure of potential fines and enquiries if invoices don’t comply with HMRC requirements.

Clearly, invoicing is something that small businesses and sole traders need to get right.

When paid full attention this can be a relatively straightforward process, but as most entrepreneurs will know, competing priorities tend to push such financial tasks down the agenda. Here are some common pitfalls to look out for and tips for mastering the invoice.

1. Learn invoicing etiquette

Before drawing up an invoice, it’s important to make sure the customer is expecting one. As a rule, it’s best practice to explain the invoicing schedule before you start working with a customer or give advanced warning if there is not an agreement in place. If an invoice appears from nowhere, it could result in slow payment or negatively impact the customer relationship – both of which are bad for business.

When first billing a new customer, you should consider calling to check the invoice has everything they need. Not only is this a welcome gesture of support, it also takes away excuses for late payment.

If said customer misses the due date, you can then follow up the next day. This shouldn’t be an aggressive conversation – instead, it’s about allaying any concerns or issues and signalling that the business keeps a close eye on payments processes. It’s important to keep this up over the first few invoices to set expectations.

2. Understand the anatomy of an invoice

It’s important to know the specific details that must be included in an invoice, before putting one together. For example, they need to note the seller, the buyer and what was exchanged. Depending on your business you may also need to include whether you collected VAT on the sale.

Providing a description of the goods or services supplied is a simple but crucial consideration, so the customer knows exactly what they are paying for. If a quote was supplied at the start, it’s also important to use the same language in the invoice, so the customer can see if their supplier is delivering the right goods or services.

It’s a good idea to keep your invoices concise but provide enough detail to ensure the customer doesn’t need to come back with questions.With this in mind, it’s better to limit invoices to a single page if possible. If a detailed record of the work done or a breakdown of the items used on the job is required, it can be supplied as an attachment alongside the invoice.

3. Don’t double up on work

Some of the information required, such as the business name, will stay the same from one invoice to the next. To make things more efficient, setting up a template can eliminate lots of copying, pasting and formatting. Handwritten invoices are practically a thing of the past, so the choices for creating a template are to:

  • Create a Microsoft Word or Google document
  • Use a spreadsheet with simple formulas that calculate totals and taxes
  • Use a template that comes with your invoicing or accounting software
  • Look for free templates online that are readymade for businesses

If using a Word document or spreadsheet, you should remember to save it as a PDF before sending to help protect against fraudsters.

4. Make the time for regular invoicing

This may sound obvious, but the most important thing about invoicing is that businesses actually remember to do them. Given the number of plates already spinning in a small business, it’s no surprise that invoices are often forgotten or paid work is prioritised over this crucial admin. But no work is paid without invoicing. You should find a regular time that suits you to dedicate to the process, ensuring that it doesn’t slip from the to-do list.

A lot of small businesses only invoice once a month, but this can be counterproductive, especially if the billing process is at the end of the month and the work is completed at the start. It gives customers a few extra weeks to make payment, which can compound cash flow issues.

With that in mind, businesses should consider billing weekly or even more frequently if they do lots of odd jobs. This will prevent a backlog forming, get customers on the clock sooner and keep money flowing into the business more consistently.

5. Don’t make invoicing harder than it needs to be

Even when bearing all these considerations in mind, remember that you don’t have to do invoicing alone. For those who struggle to find time, why not consider working with a bookkeeper or accountant?

Software packages can also speed up many of the processes around billing – whether providing template options, creating quotes, enabling quick conversion from quote to invoice or allowing mobile-first options.

Start your new invoicing journey

Mishandled invoices could well be the barrier preventing small businesses from being paid on time. But with these tips and the right support at hand, you can avoid the pitfalls of invoicing, and tackle this most vital of tasks with the utmost efficiency.

Written by
‍Damon Anderson