Kash is King - The Official Kashoo Blog

Accounting, business and technology insights for those who are blazing their own trail to success.

The Art of an Effective Invoice

Posted by Kashoo Team on October 23, 2014 at 1:10 PM

When you're just starting out with your business, getting organized with invoicing may not feel like a top priority. After all, you're busy providing a great product or service to your clients, while also trying to stay on top of the million other details you need to get your company up and running smoothly. But getting paid—and getting paid on time—is crucial to growing your business. Figuring out the best way to invoice your clients is a key step in making sure this happens.

Just like moving from a shoebox full of receipts or slapdash collection of paper files and spreadsheets to the right accounting software can make a world of difference when it comes to getting a handle on your company's finances, so does making the transition to a streamlined invoicing system that best fits your business. So, how do you craft the ideal invoice? And once it's in the hands of your client, how do you follow up with them to make sure you actually get paid?

Clarity is Key

Once you've settled on a good template for your company invoices, you'll need to plug in all the essential details. Laying out all of the relevant information in a clear, concise way will make it easier for your clients to understand what they're paying for, how much, how to pay, and when it's due.

While it may be a no-brainer to include the date, the customer name, the product/service rendered, and the payment amount, don't forget that you also need to include your complete contact details on the invoice, too. You need your company name, address, telephone number, and email address. Sometimes invoices are passed along through many people before reaching the person who will actually handle the payment, and you don't want anything to be lost in translation. Make sure the correct contact details are clearly displayed on the invoice, just in case whoever's handling the payment has some questions for you.

You'll also need an invoice number. This is generated automatically with most accounting/invoicing software. Keep your invoice numbering system consistent to stay organized and avoid future headaches when trying to track down a specific invoice (or in case you get audited). And if you'd rather not let your clients know how many invoices you've sent out, you can always modify your numbering scheme.

Payment Terms and Methods

We talked about payment terms in a recent blog post on Accounts Receivable vs Accounts Payable, but it definitely bears repeating. Payment terms vary from customer to customer, or even contract to contract, and are usually anywhere from 30 to 90 days. If you set payment terms of 30 days, that means you're giving the customer that amount of time to pay you for the product/service you've provided them on credit (like a "mini loan"). It's up to you to decide what payment terms best suit you and your customer, and also to make sure these terms are spelled out clearly when drawing up a contract and invoicing the client.

When it comes to payment methods, there are a plethora of options available to choose from. There's no need to rely on cash and checks in the age of PayPal, Square, email transfers, and other electronic methods. Weigh your options on the related costs of each method, as well as how convenient they are to you and your clients. Make it crystal clear to your clients which payment methods you accept, and if possible, be flexible: it can take time to figure out which payment methods are best for your client base, while still fitting into your company's budget.

Offering Incentives

Now that you've clearly spelled out all of the relevant contact and payment details there are other things you can do to make sure you get paid on time—or even early. It can be a great idea to offer your customers an incentive to pay on or before the payment due date. This can be a discount on their bill, free shipping on a future order, or even reduced interest. Look at your customer base and your company's budget and find an incentive that's financially viable for you while also enticing the customer to pay in a timely fashion.

Handling Late Payments

In an ideal world, every customer would automatically abide by the payment terms spelled out on the invoice. Sounds nice, right? Everybody gets paid on time, everybody's happy. The thing is, that's not the way things always go in the real world, especially if you're starting out with a small business and working with other entrepreneurs, freelancers, and smaller companies.

However, you can do your part to make sure that a late payment doesn't turn into a non-payment. Following up on unpaid invoices is crucial as an entrepreneur, so make sure you set aside some time to do so on a regular basis (weekly, bi-weekly, or monthly, depending on your business). Be proactive and polite: this will not only allow you to actually collect on your invoices, but will help build a positive relationship with your clients. And it doesn't hurt to include a short "thank you" at the bottom of the invoice itself: letting your clients know you appreciate their business can go a long way.

What if you're facing a situation where a client doesn't pay for long enough that you decide to write off their debt? To learn more about this, check our our recent blog post, What is a Bad Debt?

Some Final Tips

Here are some parting notes on effective invoicing:

  • Make sure to include any applicable taxes (ex: sales tax) on your invoice. This is an automated part of invoicing with Kashoo.
  • Double-check your math: human error can still happen, even with automated software, so check your numbers!
  • Keep a backup of all invoices, for your own accounting purposes as well as for any potential future audits.

Want to learn more about invoicing in Kashoo? Head over to our support page for a video tutorial and further info.

We hope this article inspires you to hone your invoicing skills! Of course, if you have any questions, you can get in touch with us at answers@kashoo.com.

Topics: Accounting Basics