When you run your small business, tracking your invoices and payments may seem tiresome, but it’s paramount to ensuring success. Disorganised invoice management can have an adverse effect on your finances, particularly in relation to cashflow, taxes, income and expenses. As your business grows, you might come to the conclusion that you need a more optimal system to keep track of all your invoices. Generating small business invoice management manually can often be overwhelming as requires you do deal with all sorts of clients’ records – from their previous transactions to their credit card information.
The good news is by having a strategy in place that allows you to generate, send and keep track of invoices, will save you time and effort, without the headaches. After all, every business wants to get paid on time! And, with a real-time automated invoice tracking system, it doesn’t necessarily have to be complicated to implement.
This simple guide outlines all the essential information for invoicing. It includes what they are, how to use them and the different ways to send invoices for your business.
1. What is an invoice?
An invoice is the backbone of a small business accounting. In a nutshell, it’s a document that shows a transaction of how much a client owes you. It should include the payment terms, due date and the services/products you provided to them, and is a itemised record of expense for both the client and small business.
For any business to thrive, an invoice management system is crucial to monitor cash flow. They are used for selling of goods, recurring work or one off projects. Invoices are normally sent out after work is complete although in certain circumstances, you may need to ask for money upfront. Traditionally, invoices were sent in paper form and sent via the post. However, now businesses are expected to create them online using an invoice template.
2. What to include in an invoice
To generate an sales invoice, you need to include important information. This isn’t just for accounting reasons, but because it also looks more professional and is likely to increase the chances of being paid quicker. If this information is incomplete, has mistakes or is generally confusing, then the probability of late payments can increase. So this doesn’t happen, here’s what to include in an invoice:
- Your business name and contact details
- The words, ‘invoice’ and invoice number
- The client’s name and address
- Issue date and due date outlined in your Payment Terms
- Itemised list of services/products sold
- Cost of each item
- Total due, including any discounts and taxes
- Payment methods
- A ‘Thank You’ message
3. Why tracking your invoices is essential
Sending invoices is key to the running of any business. Legally binding, this document is necessary to receive payments for any services or products sold. Whether you use accounting software or send invoices manually, they help to improve a business by ensuring smooth organisation with:
- Record keeping
- Timely payments
- Tracking finances
- Handling taxes
4. How to raise invoices
How and when you send invoices is usually set out differently for each individual client. For example, it will depend upon the type of business and the terms of your contract. In an ideal world, you should raise an invoice straight after a client has purchased your product/service.
If you have a contract with your client, then they are legally required to follow the outline of the payment terms. This could be a weekly, monthly or quarterly set up. In general, you should expect 30 days until the invoice gets paid, unless stated differently. However, this will not apply if you’ve provided credit, in which case, the invoice will show the payment date a client needs to abide by. In some cases, it’s also possible for a client to pay in installments.
5. How to send an invoice
For small business invoice management, you need to decide how you want to send them. The three main ways to do this are:
- Mail: this is a less common route and slower way to dispatch your invoice whereby you send a printed invoice via the post.
- Email: created using design software or word program, it’s a popular and easy way to send an invoice by simply writing a short message and attaching it to an email.
- Invoicing software: this procedure allows you to create invoices using available templates and has features such as scheduling invoices, accepting online payments and automating reminders. You can choose a free, paid or mobile invoicing software.
6. What exactly is invoice management?
Keeping track of your invoices, ie invoice management, refers to a system that helps to stay organised for income, payments and taxes. For example, business expenses such as those from suppliers, are incoming invoices, while outgoing invoices are the ones which you charge your clients for. You need to stay on top of tracking an invoice from the moment when it’s received to when it gets paid.
You can do this manually through spreadsheets or use accounting software that does the job for you.
7. Why do I need an invoicing management system?
While you can manually track invoices, human errors often create mistakes. This is in addition to the time and cost it can take someone to process an invoice from start to finish, especially if you haven’t received payment for an invoice. Instead of manually tracking invoices, you could, for example, be spending that same effort on marketing your products or improving customer services.
Implementing invoicing management for your small business means you can:
- Keep track of all payments, who they’re from and for how much.
- Know who has or hasn’t paid an invoice on time.
- Archive invoices easily so that they’re organised once approved.
- Automate payments and easily accept different payment options.
In contrast, if you don’t have an invoicing management system in place, it can give rise to problems such as:
- Potential loss of income as you won’t know who to follow up for late payments.
- Incur late payment fees if you’re not aware when your expenses are due.
- Unprofessionalism because you won’t know when to bill clients.
- Lack of data for keeping track of your business budget.
8. Digital Vs Paper Invoicing
If you’re currently using paper invoices, you might be thinking, ‘if it’s not broke, why fix it?’. However, digital invoicing proves to be a much more efficient and beneficial for small business invoice management. Below is a list of some important comparisons to make when choosing an invoicing system.
8.1. Paper Invoicing:
- Cost: generating them uses up supplies such as paper, pen and ink; plus, they take time to create.
- Access: uses up storage space and could make it more difficult to track further down the line, especially across different departments when they need to retrieve information.
- Security: invoices could be shared with the wrong customer, get stolen, damaged or lost.
- Accuracy: more prone to human error when information is entered.
8.2 Digital invoicing:
- Cost: it takes less time to process a transaction via a digital tool; this can also lead to increasing overall productivity.
- Access: multiple employees/departments can access invoices if already authorised by protected passwords
- Security: invoices are usually stored on a secure server, are backed up regularly and can protect sensitive information.
- Accuracy: financial information is analysed in real-time, allowing data such as cashflow statements to be reviewed or organised very easily.
9. Checklist for choosing an invoice management system
Automating your invoicing will make life so much easier when you already have many tasks to do when running a business. However, with so many different invoice management systems out there, such as Xero, for example, how do you choose which one is best for you? Although this will depend on the type of business and how it’s run, here are some of the features you should use as a guideline when looking for the best one that matches your business structure:
- Cloud-based for easy access on any device
- Pre-designed invoice templates
- Recurring payments and payment plans set up
- Organised invoice system for payment plans
- Categorised invoices that read and store data accordingly
- User-friendly invoice system and software
- Bank account, credit card and multi-currency integrated
- Generates notifications and customisable reports
- Easy to view monthly, quarterly and annual income, and taxes owed
- Automated and multiple payment options
- Allows multiple users to access the software
- Sends out late payment notifications
- Comes with security features
10. Consider your budget against software packages:
When researching small business invoice management system, ensure you have a solid budget in mind when comparing different software packages. You’ll need to know information such as extra expenses for updates, for example. Choose a cheap one and it could lack in crucial features; too expensive might mean it has too many features that require advanced knowledge to use. Therefore, ensure you compare invoicing software solutions before committing to one so you can easily stay on top of your business bookkeeping.