A detailed guide which explains the invoicing process A business without any revenue can be considered a failing business. It is, therefore, crucial to understand the invoicing process so as to invoice your customers effectively and collect cash on time. After researching the best processes around the world, we have listed down tips and tricks that will provide you with a roadmap to effective invoicing. Invoice, what is the document about? An invoice is a slip or document which serves as a request for payment owed by the customers for goods and services they have purchased from you. An invoice lists down the details of a transaction, for instance, the goods you have supplied to a customer or vendor and what they owe you in return. It’s very important to keep your collection of invoices organized as they will be used for tax or legal references in the future. What is the importance of invoicing? The importance of issuing invoices lies in the fact that any error or mistake in the invoicing process can lead to mistrust with your customers and may result in incorrect payments from them. Accurate invoicing can save you from a lot of errors and collection delays. Invoicing is very important for taxation purposes and any deviation from the requirements set by HMRC can result in fines and penalties. It is advisable to use effective software for your invoicing process or speak to your accountant or accounting firm to provide you with an effective invoicing template. What to include in an invoice? A standard invoice should be able to distinguish between the relevant supplier, buyer and the goods or services that were purchased. This article provides you with a checklist of all the necessary things you should include in an invoice. You should: Mention your firm’s name, address and the invoice number Mention the details of the goods and services traded along with the cost of goods sold Mention your customer’s or client’s details and address Mention the payment method and time to make the payment called as the payment terms Working out VAT during invoicing can get very confusing, so it’s always wise to seek assistance from a nearby accountant, business accountant or an accounting firm. What about the payment terms, methods and deadlines? Since you have mentioned all the details about the supplier, customer and the goods or services exchanged, it is equally important to share your payment method and timeframe in an invoice. You should ensure that you include any information pertaining to the amount of deposit required (if any), the due date for payment, discounts you offer, late fees and the method of payment, for instance, through internet banking, credit card, debit card, Paypal, cash, etc. You should also mention the payment terms clearly in an understandable language and state your preferred method of payment. However, there are some additional factors that you should be extremely careful about whilst invoicing. For instance, you should mention the legally registered business name on your invoice instead of the name the business might be known as. You should also be careful when sending out your invoices, these should be addressed to the correct person with the correct details. You can also email or post the invoice directly to the payables department on an organization. You should try and follow up with an account statement every month confirming the customer’s invoices which are due. If you are not sure how to do this speak to your accountant, however, if you do not have one try and find an Accountant in London. What are the different types of invoices? Tax invoice: Tax invoices are sent out by VAT registered businesses and include all the information about the resulting VAT from the sale/purchase. Sales invoice: The invoice you send out, after a regular transaction to your customer for the goods and services they have purchased, is your sales invoice. Credit note: Credit note is issued when the customer is unsatisfied with the service or when you overcharge for a particular good or service. It is for the purpose of repaying the customers back. Credit notes can be offset against an invoice and might not result in an actual cash refund. Commercial invoice: Commercial invoices are sent out once a transaction has taken place, for the purposes of estimating customs on goods imported. Interim invoice: Interim invoices are issued whenever a milestone is achieved in a long term project, an individual may send out one or more interim invoices. Final invoice: A final invoice marks the completion of the work and is not followed by an interim invoice. The basic purpose of invoicing is to reveal all the details about the seller, buyer and goods or services purchased, it is also created to show any VAT resulting in sales of such goods. You are not liable to include VAT if your business is not VAT registered. You will need to decide the correct VAT rate on each part of the sale, a good VAT accountant would be valuable in doing this correctly. You should also remember that whilst preparing your invoice, you should record your business name and information and lock it down in an invoice template so that you can issue invoices in the future without the need of rewriting all of the relevant details about your business. Alternatively, if you are working with an online accountant you will already have an accounting software setup with effective invoicing processes. Invoice number: Correct invoicing is only possible if you assign a unique number to every Invoice you issue to your customers. This makes it very easy for both parties to track specific invoices that may either be used for repayment, tax auditing or for other future references. If you are finding it difficult in preparing and organizing your invoices, you can always hire an accountant to help you deal with the invoicing complications. This article intends to explain to you the approach through which you can start creating unique invoice numbers. Assign a serial number to one invoice and assign the rest sequential numbers Create a customer code, for instance, MRY for Marians Hatchery Mention the start date at the start of your invoice number to create a specific coding Amalgamate the serial number, customer code and date to create a unique invoice number. For instance MRY-2019-10-003 MRY= Customer code 2019-10= Date of the invoice 003= Sequential number of the invoice Ensure that your invoice is precise and concrete, that is, it should have all the relevant details about the goods and services so that customers know what they are purchasing and do not need to contact you later for further queries. Also, make sure that you issue single-page invoices. This is just one way of coding an invoice, you can create multiple other methods. What to do when preparing an invoice? Step by step guide Add the data and invoice number into the invoice template after opening it Add the relevant details of the customer, your business and the goods and services exchanged Calculate the total costs Amend (if required) the payment terms that apply to the customers Get your invoice approved before issuing To prevent your invoice from getting forged, ensure that you save your invoice template in PDF format as well At the end, you need to file a copy for the tax records after sending out the invoice Sending out invoices- Overview If you want to get your payments as quickly as possible, you have to make sure that you send out invoices at the right time with the right details and make it easier for your customers to pay. We have shed light on how and when you may send out your invoices. Before you commence The Invoicing process needs to be discussed early on, just like any other business activity. You need to set the frequency at which you will be sending out invoices (can be weekly, monthly, quarterly or annually), you also need to mention the time frame during which you expect your customers to send full payments known as payment terms. When should you send out your invoices? Sending out invoices depends entirely upon the time of the transaction or can be based on project timelines. You may send out a sales invoice as soon as someone books or places an order. If you are working for a mega project, you may send out interim invoices every week or month, before sending out the final invoice. If you are in the membership or subscription business, you may send out recurring invoices at regular intervals (weekly, monthly, etc) to every customer that subscribes for your product or becomes a member of your service. What channels can you use to send out your invoices? There are three main ways through which you can ensure that your invoice gets to the right hand. By post By email By online invoicing Remember that it’s always good to send out reminders via email for any payment due by the customers before the final date of payment. How can you accept payments? Businesses want to get paid as soon as possible, for that you must ensure that your customers face minimum resistance when making payment. For this purpose, we have listed down some ways through which you can accept payments from your customers along with the pros and cons of each method. 1. Cash in hand or by cheque Pros: As compared to credit cards, customers will not have to pay extra charges while making payments. Cons: There is a probability you might lose track of invoices, with no information about which customer made the payment. Cheques can get confusing, lost or misplaces quite easily as well. 2. Internet banking Pros: By providing your bank account details to your customers, they can easily make payments on a regular basis using their internet banking software. Cons: There might be costs and delays if payments are from international customers. 3. Online payment suites and services (Paypal, Paynow, etc) Pros: With online payment services, customers can pay simply using simple payment apps. Cons: A small amount of fee is levied on every transaction What to do with unpaid invoices? There will be many instances where your customers will fail to make payments within the due date. To avoid this, you must ensure that you send out reminders to your customers on a regular basis. This is a two-way road, you have the full right to prompt your customers about their pending payment, so do not hesitate as you are not asking a favor from them. Make sure that you keep eye on your accounts receivable and try and handle old debts first, to prevent bottlenecks in your company’s cash flow. You can start off by sending normal reminders between longer intervals and gradually shift towards sending strict reminders at shorter intervals. Here are some ways that can help you get a hold of your overdue invoices effectively. You can write payment request letters or emails, which quote the invoice number and the due date with all the other relevant business information mentioned. You can also send out statements, which is not an invoice itself but lists all of the unpaid invoices of a particular customer. You may call overdue customers, verbal reminders are believed to be more effective than written ones. Your payment terms should include a clause about late payment fees because if the customers sign the terms before doing business, they are most likely to pay their invoices within the due date. However, if you think that your customer is not responding the way they should, even after a few reminders, you should take some action. If your customer is not paying, you must immediately cease the provision of supplies from your end until and unless they do something about the pending invoices. If your customer is under financial stress, you may offer them a helping hand by agreeing on a payment plan. The payment plan may be in the form of installments that will cover the entire payment within a specified period of time You can always hire a debt collector to deal with your overdue invoices, but you should keep in mind that you might incur additional costs and also lose a potential customer. Tips for efficient and quality invoicing 1. Make a phone call Before preparing and sending out an invoice, you should confirm the response by making a phone call to the customer. A call to the customer accounts administrator might be helpful to ensure that everything is working well. 2. Utilize invoice templates You can’t afford wasting time on creating new invoices, again and again, instead, you should have a standard invoice template to use, so that you don’t need to rework and enter your business information each and every time. 3. Prepare a written agreement To prevent your customer’s from avoiding late fees and penalties, you should have a written agreement agreed with your customer. This is to ensure that your customers do not deviate from their initial promises.