Ideally, people start a new business in order to do something that they enjoy and make money while doing it. The first part is usually the easiest, while the latter tends to prove more problematic. Part of the challenge is not only figuring out ways for your business to make money, but also how to collect that money once you’ve earned it. And an integral part of collecting money from your clients is billing and invoicing them properly.
Securing payment from your client is much easier if you’ve built a proper foundation. In other words, you can save yourself a great deal of aggravation by establishing an official billing and invoicing policy (your billing policy) at the outset of every client relationship. In the event of a dispute, having a definitive billing policy can potentially streamline your ability to collect payments because you can direct delinquent clients to the specific provisions regarding their payment obligations, either as a friendly reminder or as a more aggressive coercion tactic. Furthermore, in the unfortunate event of a legal dispute, having a billing policy in place that the client has affirmatively agreed to via a written contract will give you much greater leverage.
Your billing policy should also clearly denote acceptable methods of payment from the client. If the client is required to remit payment by wire, then the policy should provide accurate banking coordinates for your company’s designated business account. Your policy should also provide relevant information for any other permissible payment methods, including PayPal, credit card, intra-bank transfer, check, hand delivery, or Square Up).
When crafting your payment policy, keep in mind that it should be based on the degree of leverage that your company has, which could be based on (among other factors) the uniqueness of, or demand for, your product or service. For example, your company’s relative bargaining power will determine whether or not your billing policy can require an upfront deposit (which is optimal) or include an aggressive suspension of services policy regarding nonpayment.
You can’t invoice your clients if you fail to consistently maintain proper billing practices. Depending on your company’s resources, savvy, and complexity, there are several ways for you to administratively implement an efficient billing procedure as a small business. One option is to integrate a technology platform to automatically handle your billing; this will typically involve a recurring fee, depending on the software provider, as well as some degree of human participation from either you or one of your employees. Another option is to hire a designated employee or service provider to handle your billing either onsite or offsite. In any case, someone at your company should be responsible for periodically requesting audit reports from any third-party providers and double-checking them against your company’s internal records. A final option is to completely handle billing on your own. If you have a business that is relatively simple and consistent with respect to how it charges clients, or if you have a relatively small customer base, then this could be a realistic and cost-efficient option, provided that you have the discipline and know-how to do so. In these cases, knowledge of Microsoft Excel and the use of billing templates (many of which you can find online for free) can be very helpful.
As with billing, technology can be very useful when it comes to invoicing your clients. For example, SquareUp is both a mobile application and a computer program that you can use to not only receive credit card payments from your customers, but also automatically maintain financial records and invoice them accordingly. In addition, Quickbooks is another popular tool for invoicing purposes. Furthermore, as a counterpart to the billing options discussed above, you can always hire an employee or a third-party service provider to satisfy your invoicing needs or elect to handle the task yourself.
Note that whatever method of invoicing you use, you should always religiously adhere to the time frames set forth in your own billing procedures — and never fall behind. To do otherwise could lead to an unfortunate situation where your clients owe you money, but they now have an excuse to either demand a discount, delay payment, or withhold payment completely, simply because you failed to invoice them on a timely basis. Also, always keep in mind that customers frequently make payments based on their monthly budgets, so if you don’t invoice them on a consistent basis, they could realistically use those funds for other purposes, rendering their ability (and incentive) to pay you much more difficult.
The trickiest thing about generating business income is neither the billing nor the invoicing — it’s the collecting. If you’re fortunate enough to be in an industry where you can demand either a retainer or an upfront deposit from your clients, then that is the easiest way to hedge your risk against future delinquency or nonpayment. If you do not have any cash-on-hand from your client, then your next remedy for procuring payment will be based on your existing contract with the client (as discussed above). The terms of your client agreement can include a suspension of your services, or the threatened termination of your contract altogether, as a remedy for payment defaults. Hopefully, your goods or services are valuable enough to your clients’ daily business operations that the threat of suspension or termination will motivate their payment compliance. In any case, whether it’s based on the specific terms of your billing policy or common courtesy, you should always provide written notification to a delinquent client of whatever remedy you’re about to pursue. Not only is this good for customer relations purposes, but your reasonableness could also prove useful in any future adversarial proceeding.
Feel free to take advantage of any personal relationships that you have with your clients in order to motivate their payment. Having a friendship or similar relationship with a customer offers you the opportunity to demonstrate your own fairness and flexibility by temporarily waiving certain provisions of your contract and offering them unofficial cure periods. Just be sure to amicably present these options in writing, just in case things go sour and you need to ultimately demonstrate your reasonableness in small claims court or some other formal litigation proceeding or arbitration. However, if you’ve attempted to resolve the matter respectfully, but without satisfactory resolution, you should then be forceful, consistent, and factual in your subsequent communications, which should also be in writing.
Note that if you’re uncertain about your client’s willingness or ability to pay you at all, you always have the option of sending them an official demand letter (see Demand Letters: The Basics and How To Write a Formal Demand Letter) that offers them the opportunity to settle their debt (possibly at a discount) in order to avoid a future litigation claim. It’s always better to receive a partial payment rather than no payment at all, particularly if you’re averse to expending the time and money that would be necessary to take formal legal action against the client.