Invoicing represents the most important task that a business performs. Even above that of providing quality goods and services, a business must efficiently and effectively collect and keep track of payments. That’s why it’s important to issue professional invoices and avoid invoicing mistakes.
A business that does not collect payment eventually disappears.
The most important aspect of collecting money owed to you lies in the invoice itself. This serves as the statement of goods and or services provided, as well as money owed for them. Invoicing seems basic but involves a large range of important details. Omitting these can result in late payment or, in extreme situations, the voiding of payment altogether.
Unfortunately, because invoices contain more needed details than most realize, small errors are common.
Your invoices need to be complete, accurate, professional, and understandable. They do not merely represent a request for payment. Clients and customers will judge the capabilities of your company based on problems related to the invoice. Even worse, poorly crafted invoices could give dishonest clients and customers grounds to try to evade paying some or all of the bill.
Generating the invoice right each and every time, especially in a traditional manual system, can present a challenge. You need to, however, overcome it to maintain the image of your business.
Errors in Sending the Invoice
The first major, and most important, error that businesses commit during the invoicing process is…not sending the invoice.
Forgetting to mail out the invoice happens often. Billing departments that still use traditional manual billing will see more mistakes here than others. It normally happens when a delay or a break in the routine has prevented the bill from getting sent promptly after the goods and services were provided.
Not sending out an invoice promptly also causes problems. If the bill comes out too long after service was completed or goods delivered, it could get lost. Undisciplined customers or clients might even spend the money budgeted for the work.
The most embarrassing common mistake when sending an invoice lies in sending it to the wrong location. Errors of this sort make a business look imprecise and unprofessional. Worse, the unintended recipient may choose to ignore it or throw it away. Meanwhile, the client or customer may receive no word from you for months, compounding the potential problems.
When sending an invoice to a large organization, make sure to take some care. Get the correct contact person’s name and information and send the invoice care of that person. Businesses that have thousands of employees and branches across the globe do not have time to get your wrongly addressed invoice to the correct person and department.
Forgetting or Neglecting Necessary Elements to the Invoice
One of the most common problems in invoicing happens even before your company provides a good or a service, particularly a service. Many business owners, being honest and trustworthy themselves, do not like to impugn the credibility of others. They make mistakes by negotiating “handshake” deals rather than laying out contracts for signature. This issue ends up in invoice problems because this is where many handshake deal problems occur.
Another problem, almost as bad as never sending the invoice, lies in the failure to provide any kind of back up. Clients and customers dispute invoices regularly. Not having a backup copy leaves your business vulnerable when disputes happen.
Failures of Communication
Most invoice problems centre around the failure of communication. The primary purpose of an invoice lies in communicating what your business has provided and what the recipient must pay.
The invoice must, however, start with an essential that has nothing to do with payment and everything to do with good business practice. Every invoice should include an element of courtesy. After all, the client or customer chose your business over competitors. It need not involve anything elaborate. A simple thank you for your business will usually suffice to show gratitude.
Studies actually show that an invoice containing appropriate pleasantries has a five percent better chance of payment.
Another problem commonly found on invoices lies in the failure to provide an itemized list of charges, discounts, and other information pertinent to calculating the final bill. Many customers reassure themselves by reading carefully through an invoice to make sure they were not overcharged. You should also restate any relevant terms in the invoice that could have a bearing on the final tally.
If you think that your invoice has too much information, consider the amount of detail and information put on an invoice for auto repairs.
Make sure that your invoice at least has all of these important details:
- Business name, phone number, and other relevant contact information
- Business’s physical address. Include home office address if necessary
- Name of the client or customer along with their contact information
- Invoice number, or another unique identifier, and date
- Payment due date or details of negotiated payment arrangement
- Applicable tax number information if necessary
- Itemized list of goods or services delivered
- Additional fees charged and taxes collected
- Unique message to customer or client
- Payment due date
Think of your invoice as a legal document laying out specific terms for you, the business owner, and the client or customer. Leaving out important details could jeopardize your ability to fully collect payment.
Another critical failure of communication occurs when unpaid invoices receive no follow up. Sometimes clients and customers misplace invoices and forget to pay. While you have no obligation to send a payment reminder (and many businesses do not), doing so will help you to leave the best possible impression on clients and customers.
Watch the language used on the invoice. It should stick to facts and figures while leaving no doubt as to the meaning of the information provided. Vague language can lead to challenges to the invoice that could hinder payment. If your business still uses handwritten invoices (although one may wonder why at this point in history), make sure the language is legible, and that backup copies get created and filed.
Issues Involving Fees
Sometimes companies charge a range of extra fees that did not appear in the original agreement for the good or the service. While sometimes, these reflect reasonable charges, most often, they frustrate customers and clients, particularly if they assumed a lower price.
The invoice should never contain fees charged that your company did not mention from the beginning. These should have been clearly described and presented in writing so as not to sow confusion. This kind of mistakes cannot be explicitly called invoicing mistakes but they, for sure, have a significant negative impact.
In some cases, a company will charge an interest fee if the client or customer pays late. As with other fees, good business practice requires a thorough explanation before your company provides the product or the service.
Invoice As a Statement of Marketing and Professionalism
Many businesses forget that every piece of information that issues from their company should leave the recipient with not only what they requested, but also the right impression.
Like anything bearing the company name, the invoice should reflect professionalism and the need to build the brand. Therefore invoices should always contain the company logo and language that reflects well on the business and its mission.
Some of the most egregious issues that can undermine the image of your company lie in common mistakes. Poor spelling, incorrect math, messy writing, and other issues on an invoice can work against your efforts to craft the best possible image for your company.
The sending of an invoice also provides a marketing opportunity. After all, your business wants clients and customers to either bring more business or refer others to you. Take the opportunity when sending out an invoice to include targeted marketing materials designed to attract old customers or win new ones.
If you know that the client or customer enjoyed a particularly positive experience, you should request from them a testimonial to share with others.
Other Invoicing Mistakes
Some mistakes made in invoicing do not directly fall under a convenient category. For example, a common billing mistake that has little to do with the invoice itself and more to do with the business policy is providing overly generous terms regarding payment. Giving a much longer than standard payment window can reduce your chances of getting paid. He or she may spend money earmarked for your payment or forget about paying entirely. You should, however, maintain the flexibility to make private, case by case payment options for good and trustworthy customers who may have difficulty paying in the allotted time frame.
One important part of billing lies in knowing about client and customer pay cycles, particularly when doing business to business work. Many businesses have a monthly pay cycle and payout on one selected day every month. Knowing the pay cycle helps you to create a reasonable window for payment. Some companies have a standard 45-day payment window that covers this issue.
If warranties and guarantees apply to the sale, you should include mention of them in the invoice. Providing these makes your business look more dependable because you stand behind your product or service. They also reassure the customer or client that they will receive quality from your business.
Entering into invoice factoring arrangements can bring your company cash quickly in the short term, but cost tremendously in the long run. Invoice factoring occurs when a business sells its uncollected invoices for cash. Typically, they receive 80 percent of the charge up front, with the rest coming when the bill gets paid. Of course, the collection company will charge fees that come out of the 20 percent. When entering into these arrangements, always make sure that you understand the entire agreement or you could get stuck paying more than you bargained.
Data security dominates the headlines. Criminals, however, understand that small businesses can provide lucrative targets for breaching and stealing personal financial information. New regulations and industry guidelines surrounding the use of card payment information have transformed the way companies do business and use such data. Most businesses delete card information as soon as payment gets confirmed. Invoicing software can do this automatically and dependably. Keeping card information, especially on business computer systems, can open your business up to liability in case of any data security issues.
One reliable way to encourage prompt payment lies in including an incentive on the invoice for early payment. This could take the form of a rebate, a coupon or discount, or some other item of value that you will provide upon early payment. This practice can also help to boost your brand perception among customers and clients while helping to ensure repeat business.
Avoid Invoice Errors With an Invoicing Software/App
One way to avoid most commonly committed errors on invoices lies in using invoicing software. When your office uses invoicing software, it helps to eliminate most commonly committed mistakes. While you will never remove the human element from invoicing, you will see a reduction in mistakes, as well as the time and money cost involved.
Invoice software programs allow your company to standardize the billing process. They follow protocols and processes laid down by management.
An invoice software system ensures that the process becomes regular and predictable. Most programs allow you to choose from a wide array of invoice template designs. Template designers usually understand that the appearance of a construction company’s invoice should have a different look than that from a small gift card shop.
Using invoice software also automatically takes care of problems that sometimes crop up in the traditional manual billing system. For instance, it can impose a numbering system or other protocol to ensure that invoices do not get confused. It can also back up all invoice information not only on in house computer systems but also on the cloud.
Finally, having a reliable invoice software management system serves as the best way to consistently produce accurate, professional, and understandable invoices each and every time.
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