Invoicing is a core component of your business that can either lead to stable cash flow or late payments. And while it may feel like all of the power is in your debtor’s hands when it comes to getting paid on time, that isn’t always the case. It’s estimated that 61 per cent of late payments occur because of invoicing errors. By understanding some common invoicing mistakes that cause late payments, you can address these promptly to resolve cash flow problems.
Keep reading to learn the common invoicing mistakes you need to address so you can stop chasing late payments and get paid on time.
Incorrect or missing information
Each part of your invoice should clearly outline what your customer is being charged for, the entity or individual being invoiced, when the invoice was issued, and when payment is due. Failing to include these details can make customers unsure of when and how to pay, which can cause late payments. For example, if you detail your payment terms in the “Notes” section of the invoice stating, “Payment due 14 days from receipt of invoice,” the customer doesn’t know the exact due date. Specific information is best with invoices, so make sure everything is clear, and clarify any information you’re unsure of before issuing an invoice.
Waiting too long to create and send an invoice
If you wait too long to create and send an invoice, you could forget to include key information such as discounts and the specific goods and services your customer purchased. Not only can this impact payment times, but it can make dispute resolution more difficult. For example, if you agree on a considerable discount for a large order, but they receive an invoice for the full amount weeks later, it can damage your customer relationships and your cash flow. To make invoicing efficient and timely, consider using quote-to-pay solutions that allow you to send quotes, track fulfilment, invoices and process payments in one place.
Unclear payment terms
The invoice and payment due date are just two of the specifics you need on your invoices to detail payment terms, but there’s further information you should include to avoid misunderstandings with your customers. Make sure you outline all payment options, refund terms, and what happens if payment is late. And to encourage faster payments, you could also offer early payment discounts to help customers save money if they pay before the due date.
Limited or no itemisation
Whether you typically invoice customers for one or several items, it’s important to detail what they are purchasing, as invoices with limited or no itemisation can confuse accounts payable teams. Further, when invoices aren’t correctly itemised, this can lead to over or under-charging, which can damage your reputation with vendors and suppliers. To address poor itemising in invoices, make sure each item is on a separate line, and product or service descriptions are clear. You can speed up this process by establishing product and service categories and line items in your accounting software systems and integrating these across your other business systems.
Limited or no obvious payment options
One of the easiest ways to get paid faster is by offering your customers more payment options. If your invoices only provide one payment option, such as electronic funds transfer (EFT) details outlined in the “Notes” section of your invoice, it can cause friction in payment workflows. Instead, consider adding more payment methods, such as credit and debit card payments and buyer financing options. If you use accounting or payments software, adding these payment options can be as simple as enabling the payments integration and completing the relevant KYC/AML checks.
Using the wrong delivery method
Over 1.2 billion invoices are processed throughout Australia annually, with 89 per cent of these invoices still paper-based or pdf. When you send invoices via post or email, it’s difficult to track when the customer has received the invoice. Further, even if the customer receives the invoice, it can get lost in someone’s full inbox and cause payment delays. Keep track of your invoices by sending them through software that will show when an invoice has been sent and viewed. And to maximise your ability to get paid on time, consider e-invoicing so that your invoicing data can be automatically fed into your customer’s accounting system, resulting in fewer errors and faster payments.
Slow or no debtor follow up
According to MYOB, 59 per cent of overdue invoices require more than three follow-ups before payment occurs. You should follow up on an outstanding invoice as soon as possible. Failing to follow up on late payments can increase your likelihood of payment delays or, in some cases, not getting paid at all. With the right systems, you can use a pay-by link feature to send debtor reminders and follow-ups to reduce your time spent chasing late payments.
Improve your invoicing workflow and get paid faster with Spenda
Making mistakes in how you create, deliver and follow up invoices can have serious consequences for your business’s cash flow. By understanding some of the common invoicing errors outlined above, you may have identified some of the causes of late payments in your business. The most efficient way to address problems with your invoicing workflows is by introducing systems that can automate your accounts receivable and accounts payable processes.
Whether you’re looking to get paid faster, streamline your invoicing processes, or scale your payment capabilities, Spenda can help. Click here to book a demo and see how we can improve your invoicing workflows and stop late payments in their tracks.