Incorrect invoice payment terms can be damaging to your small business. Invoice terms that do not work for your company can slow your cash flow to a crawl. On the other hand, the right payment terms can improve your customer payment process.
Invoice payment terms are the guidelines customers use to pay you. The terms also also include information about the purchase.
7 tips for your best invoice payment terms
Are your invoice terms and conditions the ideal option for your small business? If not, try these tips to improve your invoice payment terms.
1. Make sure your invoice has the necessary parts
Your invoices need to include some essential information for an easy payment process. If a customer has a hard time understanding how to pay you, it might take much longer for you to receive a payment.
Important invoice payment terms include:
- Your contact information
- The due date
- The products or services you provided and their costs
- Where customers should send payments
- The forms of payment you accept
- Whether you offer any early payment invoice discounts or enforce late fees
Check each invoice for accuracy, including the amount due, your contact information, and the due date. Also, review the customer’s mailing information or email address before sending the invoice.
2. Shorten your payment terms
If you wait a long time between completing work and a receiving payment, shorten your payment terms. Often, giving customers too much time to make payments causes a slow cash flow.
The longer your payment terms, the longer it takes you to get paid. You also run the risk of dragging the payment out even longer if the customer pays late.
For example, let’s say you give a customer 45 days to pay an invoice. The customer pays two weeks late. That means you waited two whole months after you completed work to get paid.
Typically, a payment term of 30 days or less is effective. Before adjusting your terms, check your industry’s invoice standards. Also, look at the amount owed to you on your average invoice. These factors will help you set the right payment terms.
If you decide to shorten your invoice payment terms, tell customers before billing them with the new terms. Answer your customers’ questions. If a customer is unhappy with the new invoice terms, try to work with them.
3. Number your invoices
To have an effective invoicing system, you need to organize customer payments. Numbering invoices will help you keep track of which customers have paid and which owe you money.
Numbered invoices save you time by enabling you to find billing records quickly. Instead of digging through piles of documents, you can simply pull the correct invoice number from your records.
You reduce the risk of incorrectly invoicing a customer by organizing invoices with numbers. For example, you can prevent billing a customer who’s already paid by looking up their invoice number and seeing where they are in the payment process.
4. Send invoices promptly
As a small business owner, it’s rare you get a lot of free moments during the workday. But, don’t let administrative tasks such as invoicing slip through the cracks. Send out invoices promptly, no matter how busy you are.
Send an invoice as soon as you complete a job or deliver a product. To speed up the process, use online small business accounting software to create and track invoices.
5. Pursue late-paying customers
Sometimes, customers don’t pay invoices on time. You need to be persistent when tracking down late payments to avoid slowing down your cash flow.
Keep track of your customers’ payment due dates. If a customer has not paid you by the due date, contact them by phone, email, or mail. Find out why the customer is late on the payment.
If you cannot get ahold of the late-paying customer, you may need to send a collection letter or hire a collection agency. You might want to add invoice late-fee terms to your invoices to make expectation clear from the start.
6. Be polite
From the initial invoice to a late-payment letter, be polite to maintain good relationships with your customers. Politeness helps you retain customers and keep up a good reputation.
There are simple ways you can show your customers courtesy. Use “please” and “thank you” in your invoices. Let customers know you would like to work with them again. You can also offer a invoice discount terms for customers that pay early.
If you have trouble collecting from a certain customer, be firm but understanding. You want the money owed to you. However, you also want to come across as professional.
7. Split large payments with multiple invoices
Sometimes, a customer can’t pay a large bill at one time. But, they can pay you over several invoices. If you issue a large invoice, allow the customer to spread the payments out over time.
For example, a new roof costs more than many customers can afford in a single invoice. As the owner of the roofing company, you would spread the customer’s bill out over multiple invoices.
Write down the installment terms in an customer bill payment policy. Make sure both you and the customer sign the policy before you begin work or deliver a product.
Do you need an easy way to manage invoices? Patriot’s online accounting for small business allows you to create and track invoices for your small business. We offer free, U.S.-based support. Try it for free today!
This is not intended as legal advice; for more information, please click here.