11th December 2014
Invoicing is a topic of great importance for businesses and enterprises of all sizes, from one-person bands to giant conglomerates.
Cash-flow is said to be is the lifeblood of any firm; it is, therefore, imperative that the invoicing procedures are functioning well.
This is a particularly pressing issue for small operations, as even the slightest problem or delay in payment for the service you have provided can have serious ramifications.
Setting clear procedures and policies regarding invoices could play a big part in the eventual success or failure of your venture.
Invoicing – the basics
While the process can sometimes become complicated, invoicing is a straightforward concept. If you have provided a product or service to a customer, you must give them an invoice (a bill) requesting payment and setting out certain key pieces of information.
The document must have the word ‘invoice’ very clearly presented and should state how much the customer owes and the deadline for payment. The name, address and contact information of both your own company and the organisation you are invoicing should also be included.
If you are operating as a limited company, add your firm’s registration number to all invoices, along with the organisation’s full name as it appears on the certificate of incorporation.
As the provider of a product or service, you have a legal right to receive payment. Unless otherwise agreed, customers are expected to complete payment within 30 days of receiving an invoice or the service.
If you find yourself in a situation where you need to request payment of what is owed formally, you can use a statutory demand.
There are several strategies that could make the invoicing process much easier for small firms and freelancers operating as limited companies.
In a recent article offering advice on how businesses can maintain healthy cash flow, the Telegraph cited Gary Turner, the managing director of cloud accountancy platform Xero, who underlined the importance of getting in “the payment mindset”.
He pointed out that owners of small enterprises, particularly those that are just starting out, are often too timid when it comes to chasing up sums they are owed. “So don’t be meek – be polite but firm,” Mr Turner advised. “Your clients aren’t doing you a favour by paying. They must pay you, no matter how big or small they are.”
According to the Professional Contractors Group (PCG), one of the most important things is to make sure you do the basics well. So ensure that all invoices are sent promptly, are sufficiently detailed and clearly reflect the terms of your contract. You could also consider asking for a deposit payment in advance and should be sure to chase outstanding invoices and keep dated records of all conversations.
Another piece of advice from PCG is to rethink your payment terms. You have no obligation to offer 30-day terms, so try using 14-day payment periods instead.
After analysing over 12 million invoices, Xero found that payments are typically made two weeks late, regardless of whether they are due immediately or within 30 days. “So if you’re aiming to get paid in 30 days, you should make your payment terms 13 days or [fewer],” advised Mr Turner.
The Telegraph also spoke to Andrew Subramanian, SME partner at chartered accountants HW Fisher & Company, who underlined the importance of simplicity. He said the layout of invoices should be concise, with information such as dates, amounts and, if necessary, VAT details clearly presented.
“Remember to include not only when the payment is due but also details on how you want them to pay – for example, by giving your bank details,” added Mr Subramanian.
People just starting out in the world of freelancing will want to focus their energy on winning their first contracts and gaining experience, so they might need some support with administrative tasks such as invoicing.
One option is to sign up to a PAYE umbrella company, like our sister company SmartWork, which offers many of the benefits and reassurances that come with regular employment, combined with the freedom and flexibility of independent work.
Freelancers using umbrella companies should have access to online services to help with invoice management, as well as facilities making it easier to track payslips, timesheets, expenses and contracts. Other perks of this approach include daily payroll processing and same-day payments, statutory employee entitlements such as holiday and maternity pay, the support of a dedicated business manager and peace of mind that you are fully compliant with tax regulations.
One resource that could prove useful for people creating their own invoices is a basic template, which should be easy enough to find online.
It is also possible to find free invoicing software on the internet, such as Invoiceable and Debitoor. However, like anything free, these solutions have their limitations, so people willing to pay for a complete service could consider options such as a cloud accounting software like FreeAgent.