Whether you are sending or receiving invoices, it’s important to understand the terms and conditions being dictated by the invoice. So much of doing business between a buyer and seller is about meeting or exceeding expectations. This not only includes what you are expected to delivery as a seller to your buyer, but also what you expect in terms of payment from that buyer.
If your business is sending out invoices, for services rendered or products sold, there are a few options that you can specify in your invoicing that will relate back to payment terms. Sending out an invoice is only the beginning of collecting monies due. Payment terms will keep your cash flow on a more predictable schedule. First and foremost, a key component of receiving your money faster is by invoicing as soon as possible. Pushing back your invoicing pushes back your payday.
In general, keep your invoice verbiage both professional and customized to your client. This means: address the client specifically, clearly and politely describe the invoice terms, and show them you appreciate their business. Invoice terms will typically include information about the accepted forms of payment, a due date for payment, and late-payment penalty details, if any. For late fees, an interest charge is better than a flat fee. Opt for an interest charge over a flat fee, and continue to tack on these fees the for each term the invoice continues to go unpaid (Example: a 30-day invoice would charge 1.5-2% interest every 30 days past the initial 30-day due date).
For a long time, 30 days were standard payment terms. However, as modern invoices are being sent electronically, with the ability for online payments, 30-day terms are becoming less common. Invoices can be sent faster, and payment can be received faster. By setting shorter payment terms, today’s invoices are being paid faster. On bigger bills you may want to provide some leniency, but in these cases, you might consider offering a discount for faster payment. By knowing your industry and your customers, you can usually determine the appropriate length of payment terms for your invoices. Invoice terminology has been studied, and it has been determined that “days to pay” is preferred to technical terminology like “net 30.”
Additional ways to speed payment
- Avoid confusion between parties by discussing payment terms before delivering on your product or service.
- Follow up with clients on unpaid invoices. Invoicing software will often let you enable automatic reminders to be sent to clients.
- Be as detailed as possible about what you delivered or performed for your client, while keeping the invoice clear and easy to understand.
- Continue to follow up with clients who let a due date come and go. By email, phone and face-to-face, don’t allow debts to go unpaid.
- Create a policy for late fees.
Overall, the best invoicing system is one that is streamlined and efficient. Modern software has helped this process, allowing for electronic invoicing, reminders and easy online payments for customers. Have templates and systems in place that allow you to cut down the time you’re spending on creating, sending, and chasing invoices.