Invoicing is one of the most important features of the contemporary online business. It’s the backbone of your financial planning and the key prerequisite for smooth cash flow.
Although every business owner should know this, lots of them still make some unusual mistakes when creating and sending invoices. In return, they experience various difficulties with their payments, in terms of delays, wrong calculations, due dates, tasks they’ve done and many other things.
Also, entrepreneurs who fail to come up with a precise but concise calculation of their expenses will leave a negative impression on their clients. If you turn out to be a messy and unorganized business, it’s highly likely that your clients will stop doing business with you. All these aspects of your business depend on proper invoicing.
This is why we’ve prepared a resourceful guide on this matter. After reading this piece, you’ll know:
- what things to do before starting out a project,
- how to organize your invoices, and
- what specific items should be included in these documents.
Before diving deeper into this topic, first, we’re going to define what a professional invoice is and what it is meant for.
What is a professional invoice?
A professional invoice is an official document that contains a payment information regarding a specific business deal, usually a purchase of goods or services between two parties – the seller and the buyer. The former issues an invoice to the buyer, so that the latter can make their payments for the purchased goods or provided services. In other words,
If you receive an invoice from someone, it means you owe them money. And if you send an invoice to someone it means they owe you money.
When they receive a well-composed invoice, they know what exactly they’re paying for.
For instance, if you order a wardrobe from a carpenter workshop, they will include different stages of their work process in their invoice, as well as the materials they’ve spent. The more specifications the manufacturer adds to their professional invoice, the fewer dilemmas the consumer will have.
Moreover, these documents often come with specifications related to the amount of purchased goods, freight details, tax deductions and many other additional features that will be discussed later in the text.
Write an estimate before you start your project
The most inconvenient situation in which business owners can find themselves is having a dispute over the cost of a project after it’s been finished. When yours and your client’s numbers mismatch, you’ll both be dissatisfied.
You’ll think that the other side is playing some tricks to pay you less.
The other side will probably think that you want to charge more than you should. This is where the next of kin of every invoice – the cost estimate also known as price quote – enters the stage.
In order to take a proactive approach to this undesired outcome, you should take the bull by its horns at the beginning of the collaboration with every new client. Ask them to provide you with all their project requirements during the negotiations. Discuss this list with your project manager or with your employees, if you don’t have one.
As you calculate all the costs and the work hours necessary for the completion of that project, write an estimate and send it to your clients. Make sure it’s visually well-organized and that it has all the specifications regarding the project.
Why use invoices
When you’ve finished your project, it’s time to get paid and move on to new business tasks.
There are several reasons why paying or getting paid via a professional invoice is the most convenient way to deal with payments. For starters, every business is obliged to keep traces of their business deals and financial transactions.
The tax authorities are merciless when it comes to illegal work. Apart from that, if you’re a legal, registered business but you work without invoices, your income won’t match your balance sheet. This is a one-way ticket to being closed down and severely punished for tax evasion.
Moreover, you need invoices to keep your own record of your projects. That way, you’ll have a clear insight in your previous tasks and the ones that are yet to come.
Finally, we live in a globalized world. Today you might work with a company headquartered in The Philippines and some other day you can have a client from Columbia. As you work with all kinds of businesspeople, each speaking a different language, you need standard, professional documents that will be easily understood by every involved party.
Hence, invoices are a perfect choice for neutral financial communication.
How to write an invoice
From a user-friendly point of view, an invoice is a tricky document. It should be structured so that it contains all the information necessary for payments, but it should be as concise and visually appealing as it gets. If your invoice is too complicated, your client will neither understand what they’re paying for nor how to and when to do it.
As the first part of this triumvirate is explained in the first paragraph, we’ll discuss the other two parts, as well as some other features of a well-organized invoice.
- Business name – The top part of every invoice you send should be dominated by your business name, accompanied by the logo. You aren’t only sending an invoice. You’re also making a promotional statement.
- Contact details –Add your physical address, phone number, Skype contact, as well as your email and website addresses below the business name.
- Invoice number – Set a numbering system for your invoices. For instance, you can base it on invoice dates or you can simply start from a randomly chosen number, like 0 or 100. Whatever option you opt for, don’t change it, to keep your invoices in order.
- Invoice date – The date when an invoice is issued.
- Due date –The date by which you expect to get paid for your work. It can vary from project to project. Giving your clients a 30-day payment period is the most common practice.
- Client’s company –The upper right part of your invoice should contain the information about the recipient of the invoice. Although they will expect your invoice, follow the rules of business formality and you’ll avoid any potential misunderstandings.
- Total amount – It should be placed at the right bottom part of an invoice and highlighted with a different color, if possible. Make sure to add the tax amount to the invoice total, so that your client will know how each and every cent is charged. Also, if there are any shipping costs, include them in this part, as well.
Include work specs
This is the crucial part of every invoicing process. Your client should get a detailed specification of every single part of your work. These features should be placed in the middle of your invoice. If you think that’s too much hassle for you, put yourself in their position.
Let’s say you’ve just had your car repaired. Do you want your mechanic just to shock you with the amount you have to pay or you want to get the list of the parts they’ve changed? Here’s where you’ll also see the value of the project estimate.
Since your client had been given this estimate before you even started working on the project, you both know the terms of your cooperation.
Add pricing details
When it comes to the pricing details, include every step of the work process you’ve made, but don’t go too into deep details. For instance, your mechanic will write that the fuel filter cost $30, but they won’t bother you with the amount of electricity they spent to replace it.
Similarly, you should provide your clients with the information they’ll be interested in. For instance, a translator can either charge their work per translation page or by hourly rates.
Your invoice should contain the information you’ve agreed on with your client. If they pay you per hour, write down the number of hours you spent working on the project, as well as the hourly rate and the total sum.
When the pricing details in the invoice match the ones offered in the estimate, you can rest assured that your client will be eager to work with you again.
Use time-tracking solutions
Freelancers and businesses that charge their services by the hour should make an effort to track their work hours.
Sometimes clients get suspicious about the number of hours you’ve spent working on their project, especially if they don’t match exactly the amount of time pre-calculated in the estimate. This might lead to some inconveniences.
What you need is to be proactive and prevent such an outcome. Therefore, add a time-tracking tool to your business toolbox. It will provide you with all the data you need to justify the expenses and hours included in your invoice.
What’s more, it will probably improve the quality of your work, enhancing your productivity. In case a client really expresses suspicion on a number of your work hours, feel free to send them a report attached to the invoice, with the accurate software calculations of the time invested in their project.
Offer mainstream payment options
When you’ve made your invoice and sorted out all the calculations regarding the expenses, it’s time to consider different payment options.
The most logical choice when it comes to financial transactions are banks. Nevertheless, their fees for national transactions differ widely from the international ones. Because of that, you should offer several payment options to your clients. On the one hand, you have people from your country. In that case, the easiest thing for them would be to pay you via your bank account.
Given that today most companies use e-banking services, they can transfer your earnings to your account in no time. What’s more, if both you and your client have accounts in the same bank, they might not have any transaction fees at all.
On the other, there are your international clients. You should give them an option to make their payments via Stripe, PayPal or any other convenient online payment solution. Naturally, let them pay with credit and Internet cards, as well. You will need to add card processing solutions to your website, so bear that in mind.
Nonetheless, it would be clever not to experiment with too obscure payment platforms. Even if you know they’re reliable and secure options, it might be frustrating for your clients to open new accounts just to pay you for your work. In the end, they might stop using your services for such a trivial reason.
How to deal with late payments
While you should always believe that there won’t be any problems with your invoices and payments, every clever entrepreneur will prepare a backup plan, as well. So, if a client doesn’t pay you the agreed amount of money until the due date, you can leverage several strategies to get your earnings.
- Polite inquiry –Don’t jump the gun on the due date, but wait for a few more days. Weekends, festivals and national celebration days differ from country to country. They may cause payment delays. However, if there’s no word from your client five days after the due date, send them a polite email, inquiring about the payment.
- Official reminder letter – If you don’t get an answer in two days’ time, send them an official reminder letter. Include the invoice number and date, as well as the due date. Have a look at this template, provided by the Government of Victoria, Australia.
- Assertive statement – After being ignored for two polite letters, it’s time to make a more assertive statement. You should keep the reminder letter form, but this time tell the debtor that you’ll have to take some legal actions if they don’t pay you. Resend them the invoice and give them a certain amount of time to make their payment.
If nothing happens after these actions, you can actually file a lawsuit. However, if an international client owes you $200 for a logo, it’s not worth giving it a try. What you can do, however, is report them to the freelance platform where they found you. In international business affairs, this is more practical than a lawsuit.
As for domestic clients, don’t hesitate to activate your local legal mechanisms and seek justice on the court.
The global business world offers numerous professional opportunities.
Also, the advent of modern technologies enables us to improve both our business communication and the financial side of work. With so many cutting-edge tools at the reach of your hand and the omnipresent character of the Internet, it’s much easier these days to create business documents and send them worldwide.
Because of that, every business has a chance to devise their own invoicing policy. From invoice design to information you can add to it, your invoice can become a true brand ambassador for your business and its values. If you make an effort to keep your invoices in order and well-organized, you’ll perform your business tasks with ease and joy. To top it all off, when you’re serious and professional about invoicing, you’ll leave a great impression on your clients, which should generate new projects in the future.
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