15 Mistakes Businesses Make When Billing Their Customers
For solopreneurs, freelancers and business owners, there aren’t many things more important than getting paid for your services. When you don’t get paid, you have not only decreased your cash flow, it also prevents you from paying your expenses and bills — like your utilities and staff. And, that’s never good for business. These
Despite the importance of invoicing, there are plenty of businesses that make the following mistakes that either delay or prevent these customers from paying you for your invoice.
1. Not defining, and enforcing, payments terms.
Whether you’re a freelancer or small business owner, it’s imperative that you establish payment terms with your customers before starting on a project. These terms include when and how you expect to be paid, the late fees that will incur if the bill is past due, incentives for paying the invoice early, additional expenses, and what will ultimately happen if the bill is not paid, such as sending it to a collection agency or taking legal action.
In most cases, these terms are discussed during the negotiation process, so make sure that you have a written contract with the client so that both parties are protected.
Keep in mind that these terms are useless if you don’t enforce them. For example, don’t state that you’ll be charging the customer a 2% interest fee each month on their past due bill and then not follow through. Customers will quickly figure out which clients tolerate late payments, and how high the level is on that tolerance. This means your invoice won’t be a priority for them if you’re not consistent on your payment terms.
2. Not creating professional invoices.
Your invoices should always include your logo, color palette, contact information, and website address. This will remind your clients who you are and will help you stand out from other businesses. In fact, businesses are 3x more likely to get paid if there is a company logo on their invoice.
Also, don’t forget to use polite language such as “please” and “thank you,” and any other professional language needed throughout your invoices.
3. Not offering various payments methods.
You need to make it as easy as possible for your customers to pay you for your services. This includes everything from credit card processing, direct bank deposits, wire transfers, and accepting eChecks and eCash. Whatever payments you accept, make sure that the customer knows about them and that they are safe, simple, and are efficient for both you and your customers.
I would suggest that you ask your customers in advance what they’re preferred type of payment is so that you can set-up that system before sending out their bill.
4. Generating inaccurate invoices.
Mistakes such as sloppy formatting, spelling, grammar, typos, and even the wrong payment amount or currency will not only slow down the payment process, it also makes you like look an amateur. Always double-check your invoices for these types of mistakes before shipping them off to your customers.
5. Not itemizing.
If you were to accept a vague payment request for $500, without any specific details, would you pay that invoice without hesitation? I would hope not.
Your customers are the same way.
Instead of sending them a payment request, send a professional looking invoice and be as specific as possible in the invoice by including an itemized list of the services and expenses that you’re billing them. For example, if you’re a freelance writer, you would list every article, along with the hours, pay rate, and in some cases taxes, for each article you submitted during the pay period.
This may take a couple of extra minutes, but it will avoid any questions or concerns when the client reviews the bill, which means you’ll be paid faster.
6. Padding your hours.
If you’re charging by the hour, then make sure that you record your hours immediately. The reason? Trying to recreate or remember those hours isn’t always accurate, which means you may be charging your client more than you actually worked.
This is actually easier than ever by using innovative time-tracking software like Due.
7. Waiting to invoice.
I have some bad news for you. If you haven’t been paid within 90 days, only 18 percent of those invoices get paid.
In other words, don’t put-off your invoicing. Bill your customers as soon as a project is complete, or set aside a couple of hours every Friday to invoice your clients.
8. Failing to implement a numbering system.
A numbering system allows you to easily manage your invoices by seeing which invoices have been paid and which one are still pending. This gives you the chance to follow-up on the invoices that are either approaching the due date or are already past due. Most of the time, simply number your invoices as ‘0001’ will suffice.
Another benefit of a numbering system is that you can quickly locate a bill if you ever get audited.
9. Not following-up on past due invoices.
Even if the client is aware of the consequences of not paying your invoice on time, that doesn’t mean that they’ll pay on time. That means it’s up to you to follow-up with them to make sure that they process the payment. Send an email or make a phone call to the person in charge of payments to find out why the payment hasn’t been made.
If the client doesn’t make a full payment, then at least work out a payment plan so that you have some sort of cash flow.
10. Including unexplained fees.
Nobody likes hidden fees. In fact, customer bill-shock is never good for business since it will delay payment, and more importantly, will make the customer lose trust in your business. If there are any additional fees or expenses, make sure that they are itemized and explained clearly in the invoice.
To be on the safe side, whenever any additional fees or expenses pop-up, notify the client and get their approval before you proceed.
11. Sending invoices to the wrong person.
Just because you’ve been dealing with one person at a company doesn’t mean that they’re responsible for managing invoices. This is usually the case with larger businesses where there are multiple departments.
Always ask your client exactly where you’re sending the invoice so that it can be paid promptly.
12. Not understanding your customer’s payment procedures.
Although I previously mentioned that you need to send out invoices frequently, that doesn’t mean that your customer is going to pay that bill when it arrives. Remember, your clients have their own payment procedures. For example, they may pay their bills on the first of every month, so sending them an invoice each week won’t change the fact that they won’t be paying-out until the first.
To make life easier, find out your customer’s pay cycle so that you can sync it with your own so you’re not waiting to get paid.
13. No delegation.
This may not be the case for every business owner, but some businesses believe that charging them for menial work — or your clerical time — can be considered borderline fraud. For example, a senior attorney charging a client for paralegal work or a freelance graphic designer charging for the time it took to bill and following-up with the client.
If you can’t afford an assistant to handle these tasks, then use billing software that does tasks like recurring billing and sending out automated reminders.
14. Extending credit carelessly.
There are plenty of businesses that offer credit to their customers. But, make sure that you do your due diligence by running a credit check on the customer to make sure that they’re not a threat.
15. Not using cloud-based invoicing software.
Finally, you can save a lot of time, money, and headaches by using cloud-based invoicing software that allows you to send invoices electronically, set-up recurring payments, email payment reminders, and back-up your invoices so that you’ll have them for your records.
The time, money and effort you spend tightening up your billing procedures and ending these 15 business billing errors will pay big dividends in the future for you — no matter the size of your business operation.
This blog comes as a guest post from John Rampton, CEO of Due.com. John Rampton is an entrepreneur, investor, online marketing guru, and startup enthusiast. He is the founder of the online payments company Due. Follow John on Twitter at @johnrampton.