I don’t mean for this title to read like a deep existential question. And I don’t want to open things up with the sentence, “Webster’s Dictionary defines an invoice as…”
If you’re looking for a nice guide on how to create an invoice, what to include, and why it’s important to invoice in the first place, we think Square has a really good article on the whole process right here.
Or if you’re looking for some creative ways to design an invoice, here’s a great article on that as well. Who knew there were that many options out there.
What I want to do instead is look at the question, “What is an invoice?” and take a couple of steps back. The bigger question we think a finance department should ask themselves is: “What’s the goal of sending an invoice?”
Once your organization has a clear answer to this question, it becomes a huge first step in making your processes more efficient and speeding up your overall cash flow.
The most common goal we hear is that people want to get paid as soon as possible, while keeping a strong relationship with their customers.
Which makes sense and that should absolutely be the goal. But then we ask, “If an organization’s goal is to get paid as soon as possible, then why is the very next move to put Net 30 as the payment terms?”
The answer here is usually something like, “That’s just the way we’ve always done things over here.” But why not try switching to Net 10 or Net 15? How about something like, “Payment is due on the last day of the month, regardless of when the deal is signed.” Worst case scenario your customer says no and you’re back to Net 30. It’s worth testing out.
Or how about offering a rebate. “If you pay in the next 48-hours, we’ll provide you a 5% rebate on your payment.” Would the customer — who might have taken 67 days to pay — now decide to pay earlier? Maybe. What is the harm in trying? Instead of using your business line of credit at 10% to float yourself the needed cash, use a rebate and have your customers finance their own contracts.
Another thing to consider is switching to credit card instead of payments by check. At first this option seems unappealing because of the 2–3% fee, but compare that against chasing down money or waiting 1–2 months after payment is due. Or compare the 2–3% to what a loan would be (often 10–15% or higher) or the cost of using factoring.
These are all things FinanceFuel can help you evaluate. Our team of experts can look over your current Accounts Receivable situation and make suggestions on ways to reach that goal of getting paid faster.
Another thing: Make sure you’re sending the invoice to the right person
This is a quick check that can save you a lot of time in the long run.
Before any invoice is sent, put the name of the contact in LinkedIn and see what their title is. Make sure that person is in procurement or finance. Your team should call the main line and ask for that person or ask the person at the front desk, “I’m sending over an invoice and have the contact John Smith as the person it should go to, is that the right person?”
A lot of times this type of search doesn’t happen until it’s been 30+ days. You can get out ahead of things by doing these quick checks (or having FinanceFuel do it for you). Don’t find out in 30+ days that your contact left the company and no one has been checking their email inbox.
While keeping a strong relationship with your customer…
This part of the original goal is why I’d be cautious when using a factoring service. Because what’s the customer experience of receiving a bill from a different agency? It can hurt the connection and rapport you built during the sales process. It can decrease consumer confidence in your brand as well.
Heads of Finance tell us “If I receive a notification that I am sending my payments to a factoring service, that instantly leads me to believe something is up. What is happening in the business?” While factoring is a great and often reliable solution, be careful about perception as you prepare your customers.
We think factoring is a good solution for the right scenario and company, but there are a lot of other solutions you can use before getting to that point. If you’re at this point, or you’ve already been using some type of factoring, give us a call and we can evaluate your current situation and start building a more efficient process with your team to speed up payments.
The goal is simple: Get paid faster, while keeping a strong relationship with your customer. FinanceFuel can help get you there.
FinanceFuel accelerates a business’ cash flow by speeding up Accounts Receivables. We remove the remedial processing and collection tasks so employees can focus on high-value work driving the business forward. You can learn more about FinanceFuel on our website or, if you’re interested in speaking directly with a member of our customer success team, send us a note (firstname.lastname@example.org) and we’ll get back to you right away.