Nobody likes to make mistakes, especially when it comes to handling money but oversights can happen. Especially, when you’re a small business owner that’s doing your best to juggle all the admin tasks alone. Unfortunately, the real cost of making an invoicing error adds up to much more than delayed, incorrect or disputed payments.
There’s the immediate financial costs with possible compensation for errors and the time wasted correcting mistakes but also long-term damage to your business with the risk of losing valued clients or customers, reduced profitability and in the worst case, legal costs.
You probably agree, avoiding these mistakes is a good idea and to help you, we’ve outlined three of the most common invoicing errors that delay payments and our top suggestions for avoiding them. The best news is – they’re all very easy to action!
PROBLEM 1
Not Including Or Making Clear Your Payment Terms
Forget or choose not to include payment terms in your invoices and you’ll cause confusion about when and how payments should be made.
If you don’t make it clear when a customer needs to make payment, the money will probably stay in their own bank account, for as long as possible. Although there’s UK government guidelines about late business payments, most business owners would prefer to avoid threatening customers with late fees and interest charges, even if eligible under UK law.
Thankfully, it’s easy to take steps to avoid getting into a situation where you have to go down this route.
SOLUTION
It’s best practice to make your payment terms very clear in your invoices, but we recommend combining this with a more proactive approach – discuss payment terms with your customers before you start work or deliver a product.
Coming to an agreement about payment terms before you start, helps manage both your customer’s and your own expectations. Sometimes, you might find they have unique payment terms that you’ll be expected to stick to, for example if your customer is a much larger business or the public sector, like a local council.
The majority of the time you’ll probably be expected to set the payment terms and by discussing these upfront, you might be able to negotiate a quicker payment timeframe, agree a split payment or an upfront deposit to help manage your cash flow and reduce risk.
PROBLEM 2
Incorrect Billing Details
It’s surprisingly easy to make a mistake with the billing details, especially when you’re writing manual invoices, like using a Tallon pad or Word doc.
When using manual calculations, you risk human error including incorrect quantities, rates or total amounts and when there’s only you managing the business finances, it’s easy to miss mistakes. These errors cause confusion for your customers because they won’t know the exact payment you need.
Some customers will be proactive and contact you to check the amount but many will leave it up to you to chase for payment, instead of letting you know there’s a problem. Payment will be further delayed while you amend and reissue the invoice with the correct financial information.
In the short term, this type of invoicing error will affect a single payment but a bigger problem is the impact on your long term cash flow from damage to your reputation and trustworthiness. Even though it’s a genuine mistake, asking for the wrong payment due to incorrect billing details reflects badly on your business and will harm your chance of repeat sales, referrals or receiving a good review.
SOLUTION
Implement systems to double-check all billing details before sending invoices. This might seem an over-simplistic solution but it’s surprising how many business owners forget to review their invoices, because they’re pressured for time.
It’s especially easy to make this kind of invoicing error when generating a quick invoice from your mobile phone while you’re out of the office or onsite. Putting in place a review system should help you to avoid this kind of mistake and there’s lots of creative ways to go about it.
Some of our suggestions are:
- Ask a trusted person to conduct a review of invoices prior to sending
- Dedicate time for invoicing each week or month so you’re not pressured to rush
- Hire a VA or freelance office manager on a pay-as-you-go basis to help manage your financial administration
- Use a cost-effective online invoicing system like Invoicenet to do the calculations for you.
PROBLEM 3
Lack Of Detailed Descriptions
Whether you sell directly to the public or to another business, people like to know what they’re paying for. If customers think the charges on your invoices are unclear, they’ll either refuse to pay or delay payment until they receive further information.
If your invoices lack specific details and don’t clearly explain the exact items your customers are paying for, it leaves you at risk of late payments, cancelled orders or even requests for refunds in the future.
The more complex a customer’s payment system, the greater the chances your invoice will be queried, as it passes through different departments and across the desks of various people. They might even have regular audits, which would put your invoices under additional scrutiny from an external party.
SOLUTION
Read your invoices through your customers eyes and make sure to include any important details you think they’ll require. As a minimum we recommend you cover the cost, quantity and description of the units you charge for, whether that’s materials or your time.
Providing a breakdown of your charges doesn’t need to be overly complicated because you can include additional documents to support your invoice, such as a timesheet. If you’re not sure the level of information your customers need – it’s a simple task to ask them! They might even appreciate you taking the initiative, to give them great customer service.
You might be worried providing detailed descriptions could increase the frequency of invoice queries but if you’re looking to build a long term partnership, generate repeat business or receive a glowing Google review, it’s best to be honest and transparent.
THE BOTTOM LINE
When you’re rushed off your feet managing a small business, it’s very easy to make mistakes with your invoices. Unfortunately, these common oversights can cause more than just a short term headache, they can damage your long term cash flow and leave you open to legal issues too.
Luckily, the three most frequent invoicing errors are very easy to avoid once you know to look out for them. We’ve provided some quick wins to help you fix any unclear payment terms, calculation mistakes or confusing charges.
We can even do the heavy-lifting for you with our cost-effective, online invoicing that makes it even easier and quicker to avoid errors. We cover all the essentials of sending brilliant invoices, so you can hopefully avoid any costly invoicing mistakes, saving you time and helping you get paid faster.
