Small Business Advice: Create an Effective Invoice

By: NazDaud

One of the problems which a small business can often experience is cash flow; not as a direct result of having too few clients or customers, but simply because the clients they have won't pay. Too often small businesses suffer cash flow problems, and many can even face collapse, simply because they cannot collect all monies due.

Too often, a business owner looks at the big picture, but loses sight of the little details which make it up. It is impossible to pay full attention to every small detail all of the time, and for much of your time you'll assume that routines, systems and procedures which worked well previously will continue functioning quite happily in the future.

The problem with this theory is expansion; as your business expands and develops, systems and procedures which worked perfectly well in the early days begin to crumble, or worse, actually become problems in themselves. Often you only realize this when it is too late, or almost too late, to be able to correct it in time.

One such specific example is the way in which your business produces and manages its invoices. It's easy to think of an invoice as simply a sheet of paper with a figure at the bottom of it that you expect your customers to pay. In the ideal world, this is how it works, but sadly, too many large companies tend to use small businesses as a form of free credit. If your business is still fairly young, this could cause you real problems, but if you're at the stage where expansion of your business is happening quite rapidly, a major client paying late or failing to pay could easily cause all sorts of serious problems.

In the early days of your small business, you may have only had a handful of customers, and some of these may well have proved to be quite loyal. You may have been able to strike up some form of rapport with them, and created a mutual understanding. Your invoices may have been developed within this context - friendly bills which thanked them for their business and left it to their own honesty to pay up. Perhaps occasionally an invoice seemed to disappear into the beyond with no financial return, in which case a friendly email or reminder note was all it took to get payment.

However, as the business expands, your client base widens and the number of invoices being generated accumulates, you can quickly find that the warm and friendly honesty notes you're sending out are failing to draw in the money as quickly and promptly as you need. Each client may think that it's only them who is hanging on to your invoice and waiting a little longer for their own cash flow to perk up, but in reality it can easily end up being a significant proportion, and this can easily threaten your livelihood.

If this scenario either sounds familiar, or sounds as though it could be a situation in which you could easily find yourself in the near future, then it may be wise to take a moment and re-read your invoices. How encouraging do they look as far as making a payment is concerned? If they simply read ?ayable on receipt' or ?hank you for your order', then it may well be no surprise that many of them take quite some time before being settled. Customers may easily ignore such an invoice, and place it to one side for as long as they think they can get away with it.

Another mistake made by many small businesses is to include a series of boxes at the bottom highlighting any overdue amounts, and how late they are. These pre-printed boxes include 30 days, 60 days and 90 days. These boxes encourage late payment by suggesting that you take a kind view of late payments and do not require immediate settlement.

Instead, make sure that your invoices encourage swift action. This can be achieved in a couple of ways - either by including a date by when payment is required, or offering some form of incentive for paying quickly. If you offer a 2% discount for payments settled in full within 10 days, then your business will fare much better than offering no discount and watching your cash flow dwindle.

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The Article is written by Naz Daud - CityLocal Home Business providing Business Directory UK Business Franchise.

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