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Invoice management is a critical part of a company’s operations. Despite its importance, many businesses struggle to manage their invoices quickly and efficiently. This results in late payments, unpaid invoices, and an unstable cash flow.
In this article, we share six tips for improving invoice management and ensuring that your company gets paid by its customers. But first, let us discuss some of the benefits of good invoice management.
What Are the Benefits of Good Invoice Management?
The key benefit of good invoice management is also the simplest one. The more effective you are at getting customers to pay their invoices, the more cash you receive in your company’s bank account. While high sales numbers are always welcome, the true measure of the long-term success of your business is how stable the cash flow is. This is because that is how your company is represented to investors and that is how you are able to pay their bills and employees.
Another reason invoice management is so important is that it ensures that company directors can account for and track a company’s cash flow. This is extremely crucial when you are working on your company’s financial statements which include the statement of cash flow and balance sheet because you, and your investors, and directors must know where the company’s money is going to and coming from. Let's explore a few useful tips to help ensure your company gets paid by customers and clients:
#1: Accept Partial Payment in Advance
If the price of the good or service that you are selling is substantial, consider accepting a partial payment at the time of the purchase, and allowing the remaining amount to be paid at a later date. For example, almost all attorneys and accountants ask for a retainer, which is a percentage of the total cost of a project, before they commence on a project. They then receive the remainder when the project has been completed. This ensures that the business receives something at least, in rare cases where the customer defaults on the rest of the bill.
#2: Automate Invoices
Automating your invoicing process using accounting software greatly reduces the probability of human error. Not only is it easier for clients to pay their invoices, and frees up the employees for more high-value work for the company. It is estimated that invoicing software can help you process up to 90 per cent of invoices without human help, thus allowing more invoices to be processed in less time, and optimising the invoice management process.
#3: Have a Formal Credit Policy
Small businesses, in particular, need to have policies and guidelines to determine which customers are eligible for credit sales, and on what terms. By conducting some quick screenings and simple credit checks before the sale, you can often predict the likelihood of a customer defaulting on payment, thereby avoiding this unpleasant scenario. With the checks done thoroughly, it can decrease the risk of your business not being paid by customers or clients.
#4: Offer Discounts for Early Payments
Even though this means you are making a smaller profit on your sale, the benefits of offering discounts for early invoice payment generally outweigh the costs. The discount does not even have to be a large one -- you will be surprised to see how effective a mere 2 per cent discount can be for incentivising early payment!
#5: Invoice Immediately
If your company takes a long time to invoice your customers, it leaves them wondering why they should go out of their way to pay up immediately. It is best that invoices are sent out as soon as possible, preferably upon delivery of the goods or services to your customers.
#6: Send Your Customers a Thank You Note
Doing business is all about maintaining good relationships. Sending your customers a thank you note for paying their invoices goes a long way in building strong relationships with them, and showing them that you appreciate their business. For this process, you can use an accounting software to automate it, so you need not worry about forgetting.
Sprout with Us!
Sprout Asia wants you to focus on what you do best, while we take care of the rest. That is why we offer budget-friendly accounting services, so that our experts can keep tabs on your invoices and manage your finances with ease, so you never miss out on a payment.
Feel free to reach out to us with any questions you may have about our services, and we will respond to you within 24 hours.