One of the top benefits of being an entrepreneur is that you get to set your own rates. Whether you can find clients to pay that rate is a whole other story.
But whatever you decide to charge, getting paid for the work you do is essential to staying in business. This is why it’s critical to know the fundamentals of invoicing.
You don’t want to invoice at the wrong time and come off as an amateur. Yet, you want to get paid quickly so you can pay your bills on time.
If untimely payments seem like a recurring theme for your business, you’re not alone. There’s a whopping $825+ billion in unpaid invoices to small businesses (as of 2016).
Wondering what you can do to keep yourself out of this financial slump? We’re here to help.
In this article, we’ll give you some guidelines for when to invoice clients. Plus, we’ll include some tips for getting paid faster and invoicing mistakes you should avoid at all costs.
Let’s dive in.
Invoicing Upfront: The Pros and Cons
When you first start as a freelancer, contractor, or small business owner, you may feel awkward about charging upfront for your services.
Yet, those in the e-commerce industry do it all the time. They get paid before the customer receives their product.
In the service industry, entrepreneurs are more reluctant to do this, feeling they must first prove their capabilities. Now, there’s no wrong or right answer here.
There are multiple factors that come into play here, which we’ll discuss later. First, let’s take a look at the benefits and pitfalls of invoicing upfront.
Ensure You Get Paid
One upside to charging clients upfront is that you ensure payment. Now, it’s up to you to ensure you do a quality job for your customer.
Otherwise, you’ll tarnish your client relationship and your business reputation (yes, word does travel!).
The only issue with charging upfront is trust. If you’re working with a client for the first time, they may not feel comfortable paying in advance.
One way around this is to charge partial payment upfront. For example, you can charge half, a third, or even a quarter in advance.
Then upon completion (or along the way), you get the rest of what you’re owed.
Another benefit to asking for a deposit is that it ensures you get the rest of your money. It’s more likely that a client will pay you in full upon completion of your project if they’ve already invested.
Improve Your Cash Flow
It’s not uncommon for entrepreneurs to run out of money midway through a project. This is especially the case when the project lasts for weeks or months on end.
Then there’s the prospect of outsourcing to subcontractors. If this is what you do, then you need funds on hand to pay them immediately.
You can also use advance payments to help cover overhead costs, such as renting out an office space or paying other bills.
The key is to build a healthy relationship with your clients so that invoicing upfront doesn’t damage the prospect of future projects.
Sending Invoices in Increments
Another way you can send clients invoices is in increments. This is suitable for longer projects that take weeks or months to complete.
For instance, you may break up your project into 5 milestones over the course of several months. At each milestone, you submit an invoice.
The beauty of this is that it allows you to get consistent cash flowing into your business. Plus, sending invoices in increments helps get them paid on time (so you don’t end up with these issues).
It sends the message that your work isn’t free and gets clients into the habit of paying upon submission of completed work.
What About Invoicing at the End of a Project?
You may be tempted to invoice your clients following the completion of your project. It seems like the right (and courteous) thing to do.
However, as we mentioned before, it could hamper your business financially. Waiting a week or longer to submit an invoice can hurt your cash flow.
Plus, it can make it harder for clients to pay up. It’s better to invoice early when clients are still excited about your work.
When the invoice is sent weeks after the project’s completed, that excitement diminishes and they become lackluster about paying you quickly.
Besides, any professional business demands timely payments – why should your business be any different? When you go to an auto mechanic, you’re not handed your keys until you pay the bill.
And the same goes when you go to the doctor – you have to pay your bill before you leave the clinic or hospital.
Next, let’s review some tips for invoicing your clients at the right time. Because let’s face it – not all clients and projects are the same.
Determining How Often to Invoice Clients
It doesn’t matter whether you’re a web designer, freelance writer, or life coach – knowing how often to invoice your clients is key.
But the problem is there’s no one-size-fits-all answer. In reality, it all comes down to the project and the client you’re servicing.
In many cases, you may find yourself billing one client right away and another a week after a project’s completed.
So let’s take a look at some of the factors that play a role in determining invoicing frequency.
How Many Clients You Have
Imagine having dozens of clients that you do work for on a monthly or bi-monthly basis. If you were to invoice each one upon the completion of each small project, you’d likely spend more time tracking payments.
You’re a business owner, not an accountant or bill collector. So in this case, it would be wise to bill all of your clients at once.
For instance, you can bill them monthly or bi-monthly. Anything less than this may take you away from working, causing you to fall behind in your projects.
Once that happens, you’ll find yourself with fewer clients to bill each month.
One idea is to open an invoice for each client (if you’re using a software) and add to it as the month goes along. This way, when you’re ready to send the bill, all you have to do is click send.
Your Volume of Work
You may have a few clients that you do one project for each month. Then you may have others who are more demanding.
Say, for example, you’re doing multiple major projects for one client. In this case, you may want to break up the invoices into those increments we discussed earlier.
The benefit of doing this is to ensure you get paid for your time. Waiting months to get paid at the end of a big project isn’t feasible for most small businesses.
Another option is to ask for an advance payment or deposit. This way, if the project goes sideways, you were able to get paid something for your hard work.
Your Monthly Expenses
Let’s face it, not every entrepreneur is sitting on stacks of money. This is especially so when you’re first starting out.
It’s important to take into account your monthly business expenses to ensure you have money on hand to pay them. After all, you can’t complete your work if you don’t have an office space, internet, or lights to operate your computer and other equipment.
You may find billing on a weekly basis or upon completion to be the most suitable for your current financial situation. So don’t follow what the experts do until you’ve reached expert status.
Your Method of Invoicing
If you’re like most businesses today, you’re using electronic invoicing. If this is the case, then billing clients and tracking payments is a breeze.
You may be able to invoice your clients immediately and set up regular reminders so you don’t have to play bill collector. Of course, this all comes down to the complexity of your invoicing system.
If you’re using a user-friendly invoicing platform like Invoicely, then you can handle everything at the push of a button.
Common Invoicing Mistakes to Avoid
As a business owner, you’re about delivering a quality product or service. But you’re also about your money (let’s not get it twisted).
If you want to ensure you’re getting paid on time, without sacrificing your client relationships, then avoid these common invoicing mistakes:
- Forgetting to send invoices: Use a platform like Invoicely to schedule them instead!
- Procrastinating: Invoice right after completing a project – just set up a future due date.
- Not following up: If invoices are unpaid, reach out to your clients to get an ETA.
- Having unclear terms: Make sure your contract covers payment methods and due dates.
- Not having a contract: Create and sign a contract with each client with clear payment terms.
- Invoicing the wrong person: Find out who handles payments and get their contact info.
- Not itemizing: This helps to clarify exactly what clients are paying for and avoids disputes.
- Not having late fees: This is a great way to deter clients from “forgetting” to pay.
- Not offering multiple payment options: The more payment methods you accept, the better!
As you can see, there are ways you can make the invoicing process more seamless. If you can avoid these mistakes, then you can put your business on the path to financial freedom.
If you’re currently an entrepreneur – let us know in the comments what problems you’ve run into and how you’ve handled them!