I was naive when I started out freelancing. Why? Because I was super-excited that I had clients paying me for my services.
That wasn’t the problem. The issue was that I had the dreaded 30-day payment term. If I completed a gig early in the month, it would be 30 days before it was invoiced. It would take a whole month before I was compensated! And, that’s if the client paid on time. If not, I had to track them down until they paid the bill. In that case, it could take more than 90 days to get paid.
That’s bad for cash flow.
After some trial and error, I wised-up and got smarter with my invoicing, which increased my cash flow significantly. Smarter invoicing meant I was paid sooner, resulting in more money in my bank account.
Interested? Here are five ways smarter invoicing can boost your business’s cash flow.
1. Discuss your terms and conditions before you take the gig.
I can’t stress this enough, so please memorize this and take this piece of advice from client to client: Establish crystal clear and direct Terms and Conditions prior to starting any work. It protects both you and your client from playing each other and can be used as a reference when there’s any questions or concerns.
Your T&Cs should answer these questions:
- Do you require any payments upfront? If so, how much?
- When (what date?) (how many days?) is the payment expected after the invoice has been issued?
- Will you will charge late fees as a specific amount or a percentage of the invoice total?
- Will you offer incentives for early payments?
- What types of payments do you accept?
Answering the above questions and setting-up these T&Cs will clearly establish expectations. Clear expectations and guideline means that when it’s time to issue an invoice, it will be paid quickly and without any problems.
2. Shorten your payment terms.
If you’re a service based business, then it’s perfectly acceptable to demand seven day payment terms. Those generic 30-day payment terms are a hangover from the days when businesses were paid by a check. The “olden days” meant that it took weeks to write, receive, and clear. Businesses neither expect nor want this unneeded aggravation with invoices.
With electronic payments, however, there’s absolutely no good reason for 30 day terms. The only exception is if you’re working with an enterprise level business or government agency where there’s a bunch of red tape due to their established payment policies.
In an ideal world, you could request a payment as soon as a job is completed. For example, if you’re a plumber or electrician and just completed a job for a homeowner, it’s possible to create an invoice and take a credit card payment right there on the spot.
3. Know the best time and frequency to bill clients.
As I just mentioned above, in a perfect world you can invoice and receive a payment immediately following the completion of a job. After all, the longer you wait to invoice your clients, the less likely that invoice will get paid. In fact, we’ve found that only 18% of invoices are paid if it’s been more than 90 days.
Unfortunately, we don’t live in a perfect world. So, when exactly should you invoice your clients? And how often?
There’s no one-size solution. The business recommendations are as follows:
- If you invoice weekly or bi-weekly, send out your invoices on the weekend when your clients’ inboxes aren’t flooded.
- If you invoice monthly your invoices should be issued on the first of the month, since these were paid in 30 days. Invoices issued on the 30th and 31st were paid in 38 and 37 days.
- If you do send out your invoices during the week, Tuesdays are the best day, while the peak times to send emails are directly before and after lunch.
- As for the frequency, you should bunch all of your invoices together so that can send them all out at the same time – it’s a real time-saver.
- Use a platform like Flint as well. It will “ping” your clients until they make a payment.
However, the best way to determine the best time and frequency to invoice clients is to ask them when their pay cycle is and sync with that so that there is little lapse time between sending an invoice and getting paid.
4. Don’t hold credit for clients.
Seriously. Do the opposite of Nike and just don’t do this.
If the job you’re doing involves having to pay another supplier, vendor,or freelancer in advance, then make it the client’s responsibility to pay for that job up front. At the very least you need to request a deposit that will cover this expense. This avoids you having to chase down a payment that not only covers your costs, but also cost of the other party.
Be transparent with this when negotiating with the client so that they’re not surprised when they review the online invoice.
5. Automate as much as possible.
Even though invoice templates has made this task run more smoothly, invoicing software was designed to automate as many invoicing tasks as possible for freelancers and small business owners.
Thanks to automation, information like contact details, job descriptions, and prices are saved so that you don’t have to waste time constantly entering this information.
Automation also includes recurring invoicing, expense tracking, and other features like sending out payment reminders. .