Debtors and receiving payments

An invoicing system to make sure you get paid

Without an efficient system for invoicing customers or clients, and for following up on slow payers, your business might be heading for debt collection problems. Here’s a simple system you can use to make sure you get paid on time.

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Have an efficient invoicing system

When it comes to getting paid, assuming everything will fall neatly into place is a recipe for disaster.

Creating an efficient system makes it easier for people to pay you, can increase your cash flow and reduce the amount of effort you’re spending in chasing payments. Here are some basic principles of an effective invoicing system.

Be prompt

Wouldn’t it be nice if customers just paid you right away? If only it were that easy. In fact, the opposite is usually true – but there’s a good reason. Customers generally won’t pay until they’ve been invoiced, because the invoice provides a record of the transaction they need for their accounting. 

A common failing in new businesses is to imagine the sale is everything (or certainly the most exciting part) and invoicing can be done later – often much later. But the sooner you invoice customers, the sooner you can get paid. It really is as simple as that.

There’s no rule that states invoicing should be left until the end of the month. Instead, complete invoices as sales are made or work is completed and send them promptly. Your customer will appreciate the efficiency, and you’ll have the peace of mind of knowing you’ve kick-started the process.

Use email

In today’s world, e-commerce is queen. So if you can, email invoices to customers. It’s speedier than the post, and the sooner the invoice receives attention, the sooner you’re likely to get paid. Email also saves on postage and stationery and makes sending reminders fast and easy.

Most accounting software features free e-invoicing capability, which can drastically simplify the invoicing process. 

To learn how you can implement it for your business, visit the Ministry of Business, Innovation & Employment (MBIE)'s eInvoicing website.

Set shorter terms

Many people think that 'payment by the 20th of the month following invoice date' is a tradition that must be followed. Good news, it’s not.

Change your payment terms for new customers to 'Terms: payment within seven days' and you are well on the way to improving your cash flow. For your existing customers, you can phase in the new terms. For example, announce that the change will take place at the start of the next financial year.

Some (usually larger) companies will insist on the familiar 20th of the month, but many others will pay more promptly.

The best time to clarify your terms with customers is when you first extend them credit. Simply ask, "We require payment within seven days of the invoice date. Will that suit you?"

Eliminate statements

End-of-month statements simply sum up what the customer owes. This extra administrative step costs time and money, so eliminate it if you can.

You can do this in many cases by stating at the bottom of all your invoices in bold: 'Please pay on this invoice as no statement will be sent'.

Some customers (typically larger ones who receive multiple invoices from you) will insist on end-of-month statements. But many others will happily pay against an invoice. More importantly, you'll get your money faster as people won't be waiting for a statement to arrive.

Avoid this format if you send statements

If you do have to send statements, avoid the layout common to many statements showing how long payments have been outstanding:

  • 30 days
  • 60 days
  • 90 days
  • Total

This layout simply encourages habitually tardy payers by signalling you’re prepared to wait up to 90 days for payment. After all, it's on the statement. 

Some businesses will be only too happy to use your business as a free source of finance if they feel they can get away with it. Don't give them any encouragement. 

Choose this format if you send statements

A better layout omits the time spans and simply says: 

  • Current
  • Overdue 
  • Total

If necessary, you can point out by how long the amount is overdue when you follow up such an overdue account.

Digitising your business

There are many digital tools out there that can help run your business more efficiently, from accounting software to an online presence, this video looks at a few of the options.

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