A Year of Firsts: 5 Things You Need to Know About Invoicing
Invoicing is one of those things that seems so simple. You do some work for someone; you bill them; they pay you. What could go wrong?
Well, a lot actually. And if you don’t do a good job invoicing, you could seriously damage your small business’s cash flow, which in turn could seriously damage your new small business’s chance of success.
Let’s look at the invoicing mistakes you might make and what you can do to avoid them.
Make sure you don’t:
1) Put off invoicing.
It’s easy to get so involved in what you’re doing that you don’t have time to invoice. Especially when multiple clients are keeping you busy. But putting off invoicing also means putting off payment and falling into this habit can slow the flow of cash coming in to a trickle. Invoice each and every job as soon as possible to keep your business fluid.
2) Not state terms of payment on the invoice.
Not stating the terms of payment on your invoice is similar to handing someone a blank cheque; you’re saying that he or she can do whatever they want with it. And if they don’t feel like paying your invoice until the next solar eclipse, that’s fine with you.
Every invoice you send out needs to clearly state what the terms of payment are. Some businesses use the line, “payable upon receipt”. Others state a particular date or state that the invoice is due thirty days from the date of invoice.
It’s also good practice to encourage clients and customers to pay promptly. Some businesses do this by applying the stick, saying on their invoices that there will be a late payment charge on amounts that are past due. Others offer a carrot by offering prompt payers a discount on their bill, such as two percent off if they pay within ten days. Still others do both.
3)Forget to invoice.
One-person operations are especially prone to this mistake, but it can happen to any busy small business that doesn’t have an adequate system in place to keep accurate track of who owes the business money.
As discussed in LINK Prep for Taxes Ahead of Time, setting up an accounting system is an important first step for any new business. And if you’re the kind of person with poor paperwork habits, get the help you need to input the information into the system so no invoice gets overlooked. If you choose to utilize Intuit’s invoicing software, you can utilize our invoicing templates.
4) Send out a non-compliant invoice.
In Canada, certain information has to be on invoices for tax reasons. While leaving out necessary bits of information may not hinder anyone from paying your invoices, it could create problems with the Canada Revenue Agency (CRA) and your GST/HST account.
Besides the total amount payable and the total amount of GST/HST charged, for instance, invoices for amounts over $30.00 also need to include your Business Number. The CRA’s RC4022 – General Information for GST/HST Registrants spells out the legal requirements for invoices.
5) Not follow through on unpaid invoices.
Get enough of these, and they can completely dam up your cash flow. Reviewing receivables and going after late and non-payers needs to be a regular process. Using accounting software to flag such customers will help, but only if you then take action to get those unpaid invoices paid, such as sending out reminders/past due notices or turning delinquent accounts over to a collections agency.
See other topics in the Year of Firsts series