In business, you will most likely issue invoices regularly, as they are the one document that helps you get paid.
Invoicing is an integral part of the sales process – you want to be paid for the work you do, and in order to receive this payment, you must issue an invoice.
However, it is vitally important to get your invoice right, from the information it includes to when you issue it.
The timing of invoices is often dependent on when the product and service has been delivered, and in this post, the team at Direct Route explores invoices in more detail and our top tips on when the best time to issue an invoice is.
What is an invoice?
An invoice is a legally binding document that lists all of a customer’s purchased products and services and itemises the costs for these items.
Invoices are primarily used in business-to-business transactions to show what has been purchased, how much for, and when payment for these goods and services is due.
An invoice should also include:
- Contact information for both parties
- Invoice number
- Dates
Note: Receipts differ from invoices as receipts act as proof of payment.
Why send an invoice?
The main reason we send invoices is to collect payment for products or services we have provided. Acting as a reminder that the work has been completed, the product has been received, etc., invoices ensure that your customers don’t forget they still have to pay and that you don’t begin to build up unpaid invoices.
Invoicing is also a prerequisite for keeping your accounts in line and in order. Keeping a record of all transactions not only helps your business accounting but is also a requirement of HMRC, who state that records must be kept for 6 years, reducing to 5 years if you are self-employed.
Finally, invoices also provide a level of payment protection against a transaction falling into the invoice unpaid category.
This legally binding document must include your payment terms and payment due dates, as you will require all of these in the event an invoice becomes overdue, resulting in the use of a professional debt collection agency and, in worst-case scenarios, court action.
When to invoice a customer?
Invoices should be issued at varying times based on different situations and circumstances. For example, the timing of your invoice depends on the nature of your business, the terms and conditions in your contract, your relationship with your customer, and more.
Below, we look at when you should issue an invoice and why.
Invoice at agreed milestones—Invoicing before work has started (deposit) is typical for larger projects, where the price can be broken down into remaining instalments, pre-agreed throughout the life of the project. Payment plans like this can help both the business and the customer and should always be pre-agreed and built into terms.
Invoice as soon as the product/service has been delivered – this is the most common practice for invoicing. As soon as you have provided the customer with the goods, an invoice should be issued. Email is the quickest and most effective way to issue your invoices; however, how you send invoices should meet your customer’s preferred communication channel as well as follow your credit control processes.
Recurring invoices—If you are carrying out regular work for a customer, for example, providing them with an ongoing service every month, it may be more beneficial to your cash flow to set up and issue recurring invoices for the same amount each month.
Retainer model: Invoices are issued depending on contract terms and conditions, and they relate to the number of hours worked on specific projects and the hourly rate that has been agreed upon.
Things to consider before issuing an invoice:
- Check that the customer is completely happy with the goods/services so there is no payment delay when the invoice is received.
- Legally, invoices should be settled within 30 days – after this date, they will be considered an overdue invoice.
- If you want your customers to pay sooner, you must discuss payment terms and due dates with them and include them on your invoice.
- Always specify a due date to ensure you receive the money in good time.
- Always be clear on your payment terms, including all your follow-ups.
- Check your invoice before issuing it to ensure everything is correct and there are no errors in information/details, etc.
- Invoicing is part of cash flow management, so it’s important to set best practices for your business.
Late payment of invoices
Timing of issuing invoices can mean the difference between healthy cash flow and putting you in a tight financial spot.
Effective and efficient invoicing practices help you achieve more reliable cash flow, and as an extension of your team, we’re on hand to help.
We know that, on occasion, sometimes invoices do become overdue, and you can spend a considerable amount of time and resources chasing late payments and money owed.
To help we work with your credit control procedures as we take on the collection of your unpaid invoices and get to work.
We have a high success rate, and we ensure we continue to maintain professional relationships.
To find out more, call us today at 01274223190.
Read the next article: What is customer financing