By Emily Coltman FCA, Chief Accountant to FreeAgent
One of the best ways of keeping your business’s cash flow healthy is to ensure that you get paid quickly by your customers. But, unfortunately, this can also be one of the most difficult and frustrating things about running a micro-business.
In a recent YouGov poll commissioned by FreeAgent, one in eight micro-business owners said that they’d had to wait a year or more to get paid by a client – while almost half have waited 2 months or more. The problem of late payment has become so prevalent that the UK Government is introducing a dedicated “small business commissioner” to try and tackle the issue.
If you run a business and want to reduce the risk of your invoices becoming overdue, there are some steps you can take. Here are five common invoicing mistakes to avoid:
Mistake 1: not addressing the invoice correctly
Make sure you include the right name for your customer, both their individual name and their business name, on your invoice. If your customer has more than one business, this is especially important, because you need to make sure you address your invoice to the right business. Addressing your invoice to the wrong name or business might mean your customer has to ask you for a new invoice – which is time-consuming for both parties and will delay your payment.
Mistake 2: including an incorrect or unclear description
When you’re describing your products or services on your invoice, it’s important to make sure your client can clearly identify what it is that you’re invoicing them for. Try to include an exact and clear description that leaves no room for ambiguity or interpretation.
Remember, your client may be dealing with dozens, or even hundreds, of invoices at a time so if you don’t make it clear exactly what they’re being asked to pay for, they may query your invoice, which could prolong your payment time.
Mistake 3: using the wrong price
One of the fundamental basics of invoicing is making sure you include the correct price for the work you’re charging for, but you’d be surprised just how many small businesses forget to do this! If your customer has to query the amount of an invoice, that’s potentially another delay to your payment.
Don’t rely on your customers to query incorrect invoices! Make sure you double check the price quoted on your invoice before sending it to your client and if you’ve recently changed your prices, make sure you use the latest ones, unless you have agreed with your customer to use the historic prices. If you promised your customer a discount, don’t forget to include that on your invoice too.
Mistake 4: including VAT errors or anomalies
Choose the right VAT rate for your goods or services, and make sure that your customer knows which rate of VAT to expect. For example, if they buy a lot of zero-rated goods but yours are reduced-rated, make sure you clarify this with your customer in advance, sending them a link to HMRC’s website if needed.
If you’ve just registered your business for VAT, particularly if you’re working with a long-standing customer of your business, make sure that your customer knows that you’ve registered for VAT, otherwise the increased charge might take them by surprise and they may query your invoice.
Mistake 5: not including payment information
One of the most effective ways to encourage early payment is to make it as easy as possible for your customers to pay you. After all, if paying you looks like a complicated process – or requires extra work such as writing a cheque and mailing it to you – your client may decide to wait until they feel they can dedicate the time to it.
Add the relevant payment information to your invoice or the covering email. Include your bank details if your customers are paying through online banking or by BACS, or include an online payment link if you’re inviting your customers to use a tool such as PayPal. If your client can simply click a button and pay you as soon as they receive their invoice, they’ll be less likely to put it off!
Getting paid late is a hassle that, in extreme cases, can seriously damage your business. Making sure your invoices are in order could help lower the risk of it happening to you.