Sometimes, customers don’t pay on time. Often, the fault lies with the customers. However, there’s a chance that the invoices you’re creating and sending could have a hand in this problem.
Over the years, we’ve seen that companies are taking longer to pay their receivables.
Instead of 30 days, it ballooned to between 45 and 60 days a decade ago. Today, it is often three months before companies pay.
Naturally, this will affect the cash flow of your company. Even when you feel prepared, customers that take a long time to pay can cause serious problems.
You need to consider just why they might be so slow to pay.
It could be entirely on their end. However, in some cases, it could be due in part to your invoice. Sometimes, customers will use the invoice as a means to stall or even not pay.
Therefore, you’ll want to make sure that your invoice is a cash flow tool rather than a tool the customers can use to avoid paying you on time.
What Does the Invoice Need?
It’s important to have an understanding of what a good invoice needs if you want it to work well as a cash flow tool rather than a potential hindrance.
When the Payment is Due
First, you need to be sure that you have clear terms of sale whether you are using manual or automated invoices. It’s essential that you have the specific due date printed on the invoice rather than in the terms.
If you simply have in your terms that the payment is Net 30, the client can misconstrue when the actual payment is due. This might be a mistake on their part, or it could be a calculated effort by them to get more time to pay without repercussions. By including the due date on the invoice, you get rid of any confusion.
You also need to be clear about the payment instructions. Although this might seem like common sense, there are likely many invoices that do not have proper instructions for sending the payment. It’s essential that you have the exact payment instructions and/or mailing address on the invoice. Don’t leave anything left to interpretation. If something can be interpreted, you can be sure that at least some of your customers will get it wrong.
For example, if you have your P.O. box for receiving checks on the invoice and you have your business’s physical location at the top of the invoice, some customers will send it to the wrong address. Always be clear and keep things as simple as possible. It will reduce confusion and missed payments.
Clarity with Payment Discounts
The clearer you make the invoice, the better. This includes any payment discounts that you might offer. Instead of using typical accounting language, be clear and specific. Provide the day, the month, and the year that the money will have to be paid to receive the discount. Additionally, provide the actual dollar amount that will be discounted rather than a percentage.
Stalling with Disputes
Sometimes customers are looking to stall on payment, and one of the strategies commonly used is to ask questions or raise a dispute on the day the payment is due. These invalid claims are a stall tactic that many companies try to use to push back their payment.
Therefore, you need to be clear in the invoice on what to do if there are any questions or disputes about the product, service or charges.
Let the customers know that they need to contact your company before the date of the payment. Be sure to be clear about which department needs to be contacted and provide their contact information. You may also find that it is advantageous to send a credit confirmation letter to the customers.
Include the Right Clauses on the Invoice
If you are going to be charging late fees and interest, you will need to provide this information in the invoice, as well.
Not only will this provide clarity for the clients, but it also encourages them to pay on time. They don’t want to incur more fees because they are late on a payment.
Regarding the interest, you need to be clear about just how much the interest will be for each month on the unpaid balance. The fees help to motivate slow payers and those who might decide not to pay for whatever reason.
When the clients are more motivated to pay you, it means that your cash flow won’t suffer.
Of course, there are other types of clauses that you will want to have included on your invoice, as well.
For example, you will want to include a breach clause. This lets the client know what will happen if they are in breach of the contract. This can include letting them know that they are responsible for the costs of collections, legal fees, their balance, and so forth.
Having this in the invoice not only protects you but as with the late fees, it helps to provide more motivation to the customer to pay their debts.
Clarity and Thoroughness
As you can see, you need several elements to add to the invoice if you want it to be a cash flow tool for you rather than a way for customers to try to get out of paying.
It is always best to be as meticulous and as clear as possible with your invoices. It tends to be better to err on the side of caution and to include more than you might need.
However, clarity in the text isn’t the only thing that you will need to consider when it comes to your invoices.
Color Makes More of a Difference Than You Might Think
Many companies are still using simple black and white invoices. While this might not seem like a problem, you will find that color can be an important factor when it comes to your invoice as a cash flow tool.
Color has been shown to increase readers’ attention spans and recall, and it can help to show your company in a professional light. Color is more memorable.
We all know that color can help to improve sales and it is important for marketing.
However, it can also help to speed up the time in which you get paid by your clients. Using color has been shown to provide 30% faster payments from invoices.
The colors that you use are ultimately up to you. You may want to look up some color theory to get a better sense of what different colors tend to convey.
Consider using green. It’s not only the color of money, but it is also seen as being a relaxing and soothing color. Some might want to use their brand colors, which is a viable option.
You might be thinking that red should be used instead, as it can denote a sense of urgency and action that needs to be taken. While this is true, and it could work for invoices, some people might see red and think anger.
It may take some time to find the color scheme that works best for your invoices, but it is time well spent.
What About Color Costs?
The cost of printing in color isn’t as high as you may think, and many find that it is worth the price since it can help to ensure on-time payments. Additionally, those who are sending invoices through email won’t have to worry about any additional costs, since it will not be printed.
Make Sure the Customer Receives the Invoices ASAP
The invoices should go out to the customer as soon as possible with no delay in getting them into the mail or sending them online.
If your company is slow in sending the invoice, the customers could claim that they didn’t receive it in time or at all. Be sure to send the invoice right away and consider following up with the customer to ensure they received it.
Time to Turn Your Invoice into a Cash Flow Tool
As you can see, there could be some things that you are doing incorrectly with your invoice currently. Maybe you’re not getting the results that you want.
However, with a few changes, it is possible to take that invoice and turn it into a cash flow tool for your business. Look over your invoice and see where it shines and where it might falter.