The reality is that many operating businesses do not provide their customers or clients with properly drafted and defined invoices. We have seen it far too frequently that critical information is frequently omitted from invoices. This creates confusion with clients, but more importantly, it creates significant difficulties when collecting the business debt. With this type of invoice, you can be certain of one thing: it will affect your business and negatively impact your cash flow.
Thus, how can you transform your invoice into a cash collection assistant?
The best course of action is to go through the checklist below to determine what is missing from your current invoice.
A well-planned and designed invoice should include the following 15 critical components:
- Your business’s name and contact information: Include a logo for your business, address, phone number, fax number, e-mail address, and a website. This is typically placed directly above the invoice, where it is easily visible.
- The invoice’s date: It should have the date of the transaction or services provided by your business.
- Reference number for the invoice: Frequently, the invoice to payment (AR & AP) should include a “purchase order number.” This is true when products are involved, which aids in delivery tracking.
- Details of the purchase/service: Create a detailed list of all products purchased/services rendered. The more information you provide, the fewer inquiries you will receive from your clients.
- Total cost of the product/service: You should make this amount prominently displayed.
- Shipping and handling charges or delivery fees: Often, these costs are added to the product and are not included in the price. Assemble them separately and itemize them for a clear overview. If they are “thrown in the deal,” include them and mark them as a bonus with a nil charge. This is an excellent way to demonstrate to your customer the value he is receiving.
- The amount of tax charged: If taxes are due, they are usually shown at the bottom of the invoice. The exact tax percentage is then calculated and added to the previous invoice total.
- Total amount payable: This is the final amount shown on the invoice and is the correct amount to note. This is why it is typically printed at the bottom and in a larger block font.
- Terms and Conditions of Payment: Make no assumption that clients/customers understand when they must pay. Indicate in bold print the date by which they are expected to pay. You may use alternative language, but you must be explicit about the credit period. For instance, you could write “Payment due 14 days from invoice date” or “Payment due on 01/02/2022.” If you have to go through a collection agency or the courts to get paid, this clause is very important.
- Modes of Payment: Indicate the payment methods available: cash, check, credit card, EFT, B-Pay, and TT. Include your business’s bank account information for direct payments, as well as information about any associated merchant fees or percentages. As an incentive for prompt payment, you can include a bonus such as “If credit card payment is received within 14 days of invoicing, the merchant fees associated with the transaction will be waived.” You may be surprised at how many clients will take advantage of this offer to earn additional frequent flyer miles.
- Terms and Conditions of Trade/Service: This section is frequently omitted from invoices. I don’t think that it’s a good idea to leave this out. Not printing it could cause problems with clients and collections in the future.
- Late payment penalty: Indicate the specifics of the late payment penalties, including any applicable interest. This is not an excessive amount of information, as many clients do not consider these issues in advance. This way, the client understands that the payment agreement has been thoroughly checked and is less likely to complain later.
- Warranty or guarantee details: These details could be printed on the back of the invoice to avoid clogging up the billing section. Additionally, this inclusion will reduce the number of queries you receive from clients and customers.
- The return policy and the associated fee: If your business deals with products, this is a mandatory item to include on your invoice. Returns occur frequently, and the best policy is a transparent return policy. It eliminates ambiguity on both sides.
- Consequences for failing to pay on time: This is a critical component of the invoice that many omit. This inclusion is critical to your business’s collection process and is a costly omission, yet it is frequently overlooked. Include the following statement: “Failure to make payment within 14 days of the date billed will result in an additional charge of 1.5 percent per month.” Additionally, the customer is responsible for collection costs, which may include reasonable legal fees. ” If a similar phrase is omitted and collection is necessary, collection costs, including legal fees, may not be recovered, and repayment for these additional expenses may not be enforced in a court of law. Why would you want to obliterate the possibility of cost recovery? Add this line to your invoice and you can get the costs and interest.
When you consider all of the points we’ve discussed, you may believe it’s impossible to include them all. You may believe this is an “excessive approach” to your invoice. However, keep this in mind: by ensuring that your invoice contains all of the above components, you will elevate it to the status of your most effective debt collection assistant. Try it; you’re going to love it when you see the difference it makes in your cash flow!