You want to be paid for the work you did right? Well of course you do but did you know that you could be doing things that might be delaying you being paid?
Here’s the bad news: In most cases, it’s really easy to mess up invoicing.
Here’s the good news: It’s really easy to prevent mistakes
When 2 or more parties agree to an exchange of goods and or services they usually will enter into some form of an agreement or contract. When this agreement is established and signed by all parties, they are agreeing to a lot of things that will affect the invoice process.
The 7 Must Haves for Every Invoice
- Your Business Name and Address. This is established when you file papers to be an official business in your state or providence.
- The Address and Name of the business you are invoicing. It is also important to add a contact name to your invoice here.
- A unique invoice or reference number for this invoice and this invoice only. PLEASE NEVER EVER USE AN INVOICE NUMBER MORE THAN ONCE. It makes us Accountants and Bookkeepers die a little on the inside every time we see this 😱.
- A date on the invoice. Usually the date the invoice is generated.
- A list of all the goods and or services you provided. These MUST be broken out on separate line items on the invoice with their individual cost.
- A Total amount for the invoice
- The agreed upon payment terms. This is how long the customer has to pay from the date of your invoice. Generally, the standard is 30 days. Some companies might go with shorter payment terms and others might go with longer payment terms.
I know Fortune 100 companies that are currently paying 120 day payment terms. Yes. You read that right. 4 whole months.
3 Things to Also Consider when Invoicing
- When working with bigger clients, they might provide you a Purchase Order or other reference number. This number should also be included on the invoice so your customer can quickly identify the charges and who requested the goods or services.
- It is beneficial if you include the ways you accept payment for the invoice (i.e. PayPal, Bank, Credit Card, etc.) and the associated links or bank account details on the invoice.
- If you charge sales tax or VAT tax on your invoice, it is important to either include or provide your EIN (in the USA) to your customer so they can cut down on time when it comes time to file taxes.
When should you invoice your customer?
As mentioned previously, when 2 or more parties enter into an agreement either formally (with a contract) or informally (by mouth), the timing of which that you can bill your customer will be established.
Billing for Services
When Rendering Services, you can bill one of two ways; before services are rendered or after.
When you bill your customer before you render services, you the service provider bear no risk. Meaning you won’t have to worry about going after the customer for payment after the service is provided. If you are just starting out, you might have a hard time convincing your customer to pay up front because they might not trust you and your business, yet.
If you decide to bill your customer after services are rendered, be sure that payment terms are agreed upon prior to services being rendered. Unfortunately, a lot of Businesses and People don’t like paying on time. This can lead to having cash shortage problems in your business and in some extreme cases it can lead to expensive legal costs.
Billing for Products
The majority of billing for products occurs at the time the order is placed. In Business to Consumer (B2C) transactions, billing and payment occur simultaneously. For Business to Business (B2B) transactions, billing occurs at the time of the transaction but payment is done in line with the agreed upon payment terms.
Billing for Construction
In the event that you work or know someone who works in construction or other blue-collar trade (HVAC, Plumbing, General Contractor, etc.) billing can reflect the service model or a payment plan system.
The payment plan system usually follows something like the following: At the beginning of the project (usually when the agreement is signed) a down payment of roughly 20% is required for work to begin. This 20% allows the business to put funds where they are needed (labor, materials, etc.) and then payments of 20% will continue when the company reaches milestones. Think of putting a roof on a new building as an example for a milestone.