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A business goes through a lot right from the start to keep it’s head up among fellow competitors. Among the many problems faced, cash flow is the biggest issue that causes over 70% of start-ups – including freelancers – to go down within the initial year.

While there could be many factors governing the cash flow, invoicing happens to be the most critical in the list. Therefore, it is important for a business to invoice effectively and avoid any dreaded late payments. So, here’s a brief guide on how freelancers & small businesses can invoice effectively to keep their cash flow healthy.

Cash Flow

Require An Upfront Deposit

This is probably my best tip to best manage your cash flow. To start any work, you should get an initial deposit and a signed contract.  I usually require a 50% deposit or 30% for larger projects. See further business tips for designers here.

Get the Final Deposit Before Delivery of Files

To ensure you get paid, you can state in your contract that the full deposit must be made before delivery of final files. As long as the client is pleased with your work, this will ensure you will get paid. See tips on how to go about pricing your work here.

Make your Invoices Look Complete

Example Invoice

Example Invoice

An invoice that looks complete is paid the fastest. Any invoice that you send, should clearly state that it’s an invoice, which should be written at the top. Other information may include company’s name, address, contact number, and business number if applicable. The name and the address of the client should also be there.

Your invoice should include the products/services provided, date of delivery, date of invoice, tax, interest charges, and the total amount charged.

There are some great invoicing tools out there such as Invoicera which you should check out. You can see other software & hardware I use here.

Send Invoices on Time

Clients are the main source of income for any company, however, clients don’t serve the purpose when they don’t pay on time. That is why it is advised to send a prompt invoice upon the delivery of a service, or a product. I often leave this until the client is happy with the end product / design so it doesn’t seem like you’re a money-hungry scrounge.

Don’t Let the Flow Lose its Path

Your clients may start-off with timely payments initially, however, in the long term they are more likely to drift away from the path and start delaying payments. You must keep an eye on this by levying late fee or interest charges, if a payment is delayed.

While this can also be tackled with a prompt payment invoice, you could also bring in a ‘promise to pay system’ within your contract, so that the client is bound to pay within a specified period.

Piggy Bank

Invoice in Parts

Invoicing in parts is a great technique to ensure timely payments and works in favor of both parties. Clients usually contemplate a lot before paying a lump sum amount however, they won’t have to think as much when asked for a partial payment. Like I mentioned before, I require a 50% or 30% deposit upfront. You, as a vendor would also be benefited with this technique as partial payments will keep your business running and cash flow smooth. Partial payments can also help when scope creeping comes up.

Agree on the Terms Before Work Begins

The key to this point is that negotiation or terms of any kind should be clearly understood by both the parties before engaging in any work. If a client tries to move away from the previously mentioned terms while in the process, there’s a need to react before any further business deal or delivery of files.

Give your Clients a Reason to Pay, not to Delay

Clients will often have excuses for an untimely payment. You could come across a number of excuses like, “I never received your email” or “I have sent a cheque, let me know if you don’t receive it within a couple of days”.

To avoid hearing excuses, you should send timely reminders, around 3 to 4 days before a payment is due. You can do this automatically with online invoicing services or another manual way is to use an email reminder service such as FollowUpThen.

Sending reminders gets the client to take immediate action. Another way to tackle this would be giving a discount on a timely payment encouraging them to skip excuses and pay on time.

For a larger business, something like FundingGates (a past client) would be a more robust way to manage your receivables.

How do you manage your cash flow and invoicing?

Photo Credits: Roger Smith, Alan Cleaver cc

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