Setting up correct invoicing can be a bit of a minefield, especially if you’re a new business owner. Despite being an essential task of running a business that every freelancer, small business owner, sole trader and tradesperson has to carry out, some businesses are better at managing their invoicing than others.
As invoicing experts, we know there’s lots of important and useful reasons why you need a good invoicing system including:
- Creating happy and loyal customers by building trust and a professional image with invoicing promptly and accurately
- Better cash flow in your business by keeping on top of money owed to you and being able to track payments before they become late
- Save you time and a big headache by having all your accounts in order, for when you have to tackle your annual tax-return.
To help you get started, we’ve created this beginner’s guide to invoicing that walks you through the most important things to be aware of. It also includes some top tips to help you get paid faster, while keeping your accountant and customers happy.
First, let’s cover some basics about what an invoice is and why it’s so important to your business.
WHAT IS AN INVOICE?
An invoice is a commercial document issued by a seller to a buyer that outlines the details of a transaction. It’s a formal request for payment for goods or services provided and it’s an essential financial record that ensures smooth transactions between your business and your customers.
WHY ARE INVOICES IMPORTANT?
Your invoices aren’t just a receipt for your sales, they’re a crucial part of how your business communicates transactions with both your customers and to the tax office. They’re formal documents that outline what you’ve provided, the cost and when payment is due. In other words, it’s a professional way of saying, “Hey, this bill needs paying” and to prove to relevant parties that you provided goods or services in exchange for the money that’s in your bank account.
WHY DO YOU NEED ANY INVOICING SYSTEM?
Although a good invoicing system is vital to any size business, there’s additional pressures that smaller business owners face, which can be improved or avoided by having a good invoicing system in place.
- Better cash flow management
- Promoting a professional image
- Supporting dispute resolution
- Ensuring adherence to legal requirements
- Improving customer relationships
As you can see, it’s important you send out accurate invoices and having a well designed system will make running your business much easier. To ensure you get your invoicing right, right from the start, we recommend the following steps.
STEP 1 : PREPARE
PREPARE REQUIRED INFORMATION & TOOLS
Gather Essential Information – Have all the details you need to set up your invoice
- Collect your business details: business name, contact information and any tax numbers
- Have your customer’s details ready which usually includes their name and address (and their business information if applicable)
Choose a Simple Invoicing Tool – To make producing your invoices and managing payments easier
- Opt for user-friendly invoicing tools or templates designed for beginners
- Explore free or low-cost options to suit your budget
STEP 2 : CREATE
CREATE YOUR FIRST INVOICE
Include Basic Information – The essentials you need to include
- Clearly state your business name, address and contact details
- Add your customer’s name, address and other relevant business information, including the person and department that manages payments (if they’re a business)
Invoice Numbering – Easy to remember and scale
- Start a simple and logical numbering system for your invoices
- If a customer has repeat business, make sure you select a numbering system that allows for multiple invoices to be created in the future
- Invoice numbers can be a combination of both numbers and letters
STEP 3 : ITEMISE
ITEMISE THE PRODUCTS OR SERVICES PROVIDED
List Your Services or Products – Clearly state the products and service you’ve provided
- Describe your services or products in simple terms
- Include quantity, rate, delivery date and total for each item
Calculate Total Amount – Accurately calculate the costs to you customer
- Clearly display the total amount due
- Include any discounts applied
- Add applicable taxes or fees
STEP 4 : PAYMENT
SET OUT YOUR PAYMENT TERMS AND METHODS
Define Payment Terms – Make sure your customers are clear when to make payment
- Specify the payment due date
- Explain any late fees or discounts for early payment
- If you’re unsure of the legalities of late commercial payment charges, the UK government website has useful details
Payment Methods – Provide payment options available
- Mention accepted payment methods and platforms (e.g. bank transfer, credit card)
- Provide necessary details for each payment option
STEP 5 : FINAL STEPS
CHECK ACCURACY AND SAVE SECURELY
Proofread Your Invoice – Check all the details are accurate
- Double-check for errors in calculations or typos
- Ensure all necessary details are included
Save and Backup – Make sure to save securely for future reference
- Save your invoices in a secure location
- Consider using cloud storage for easy access and backup
STEP 6 : SEND YOUR INVOICE
DELIVERY & FOLLOW UP
Choose the Right Timing – The quicker you invoice, the faster you’ll get paid
- Send the invoice promptly after completing the work or delivering the product, delaying can adversely affect your cash flow
- Consider your customer’s payment cycles, for example, if you work with the public sector, local governments can have very rigid payment terms and systems in place that you might need to adapt to
Confirm Receipt – Be proactive with getting paid
- Use suitable methods to check your invoice has arrived including delivery and reac receipts on emails
- If possible, telephone to check your invoice has arrived, it will give customers chance to address any questions that might delay payment
Follow Up Politely – Don’t be afraid to politely but firmly chase your payment
- If the payment is not received by the due date, send a friendly reminder
- Include clear instructions for payment
- Address any questions or concerns that might be preventing your customer from paying
Handling late payments can be a difficult and unpleasant task but by following our ‘beginner’s guide to invoicing’ you can do your best to avoid your customers not paying on time.
THE BOTTOM LINE
Invoicing plays a crucial role toward the financial stability of your business but establishing a great invoicing system doesn’t have to be a headache.
Your invoices aren’t just paperwork; they’re essential business documents that evidence your financial transactions, encourage positive customer relationships and keep the cash flowing through your business.
The simple steps outlined in our Beginner’s Guide to Invoicing will help you create an invoicing process that will support and sustain your business, while making life easier for you too. Our invoicing software can make things even easier by doing all the heavy lifting for you.
