In the previous module, we explored the essential steps in executing a project and managing a contract. From initiating the project, managing the scope of work, tracking billable and non-billable hours, to delivering the final project, we covered it all. In Module 6, we’re shifting our focus towards the financial aspect of your consulting business – invoicing and ensuring timely payments.
Recap of Module 5
Module 5 delved deep into project execution and contract management, revealing how to successfully deliver on the promises made in your quote. We discussed the importance of tracking both billable and non-billable hours, as well as keeping a close eye on expenses. Ensuring that all project tasks were completed to the client’s satisfaction and obtaining their sign-off was the final step. We wrapped up by emphasizing the importance of a post-project analysis to learn from each project and continually improve our services.
The Importance of Accurate Invoicing
Invoicing isn’t merely a matter of asking for payment; it’s a significant part of your business communication. It is critical to maintain accuracy and professionalism in your invoices, reflecting your services’ value while making it easy for clients to remit payment.
Creating a Detailed and Professional Invoice
Your invoice should include all necessary details, such as your business information, client information, invoice number, detailed list of services provided, total amount due, payment terms, and due date. It’s also helpful to include your quote number on the invoice, as this should align with an approved quote. Additionally, including the customer’s purchase order number, which signifies their commitment to buy from your business, can also streamline the payment process.
Elements To Include in your Invoice
Header: The word “Invoice” should be clear at the top.
Your Business Information: This should include your business name, address, contact number, and email address. If applicable, also include your business logo.
Your Client’s Information: Include the client’s business name, contact person’s name (if applicable), their business address, and contact information.
Invoice Number: Each invoice should have a unique invoice number for tracking and record-keeping purposes.
Invoice Date: The date when the invoice is issued.
Payment Terms: This includes the terms under which you’re billing the client. Common terms are “Due upon receipt”, “Net 30”, “Net 60”, etc.
Due Date: The date by which the payment should be made based on the payment terms.
Purchase Order Number: If the client provided a purchase order number, it should be included on the invoice.
Description of Services: A detailed breakdown of the services provided, including the date, description of the service, quantity or hours, and rate per unit or hour.
Subtotal: The total cost of services before taxes or any additional fees.
Taxes: Any taxes that need to be applied should be listed and calculated.
Additional Fees: Any additional costs or fees, such as late fees, should be listed and calculated.
Total Amount Due: The final amount that the client owes, including all services, taxes, and fees.
Payment Methods: Detail the payment methods you accept (bank transfer, credit card, check, etc.).
Notes or Special Instructions: Any additional information or instructions for the client.
Quote Number: If the services were initially quoted and the quote was approved, including this number can help cross-reference documents.
Remember, the exact contents of an invoice might vary depending on your specific business and location, as different countries or states might have their specific requirements. Always ensure to comply with local laws and regulations when creating an invoice.
Establishing Clear Payment Terms
Setting clear payment terms from the start will help avoid any confusion or misunderstandings down the line. Terms you might use include ‘Due upon receipt,’ which means payment is expected as soon as the client receives the invoice, or ‘Net 30,’ which means the client has 30 days to pay the invoice from the date it’s issued. These terms are standard in the industry, with many businesses typically expecting payments within 30 days.
Using Invoicing and Payment Software and Providing Various Payment Options
Consider using invoicing and payment software to automate and streamline the invoicing process, manage your business’s financial health, and provide various payment options to your clients. Let’s discuss some of the most common payment methods and their pros and cons.
Bank Transfers: This is a widely used payment method due to its directness and convenience. However, international transfers may incur fees and take several days to process.
Credit Card Payments: These are convenient for clients and provide instant payment for you. However, this method usually involves processing fees.
PayPal or Online Payment Platforms: These are fast and convenient for both parties, especially for international payments. However, they may also involve transaction fees.
Checks: Some businesses still prefer using checks. However, they can take time to clear, and there’s a risk of checks bouncing due to insufficient funds.
Cash: While not common in consulting, cash payments eliminate the need for processing fees and are immediate. However, they are not suitable for large amounts or remote work.
Each of these payment methods has its own benefits and drawbacks. It’s essential to offer options that cater to your clients’ preferences while also considering what makes the most sense for your business operations.
Following Up on Late Payments
Establish a system for following up on unpaid invoices. This could include sending reminders before the payment due date, contacting the client immediately if a payment is missed, and having a strategy in place for handling consistently late or non-paying clients. You could also consider late payment fees to incentivize prompt payment. However, be cautious when using this approach, as it may strain your relationship with the client.
To help ensure prompt payment, have direct contact with the accountant at your client’s firm. By sending the invoice to the right person (the accountant, VP, or even CEO), you can expedite the payment process. Your goal is to have the invoice paid as soon as possible.
According to industry standards, it takes companies an average of 28.5 days to pay their accounts payable. However, this can vary depending on the industry, size of the company, and specific payment terms agreed upon.
Stages of Late Payment Reminders
After 30 days: Follow up with the customer if the invoice is not paid. Send an email to the local champion, and the accountant
After 45 days: Send an updated account statement, and include a list and balance of unpaid invoices
After 60 days and 90 days: Send your client a collection notice letter.
After 180 days: Consider writing off the amount owed, and cease providing services to the customer.
Mastering the art of invoicing and ensuring timely payments is a crucial aspect of running a successful consulting business. By implementing the steps we’ve discussed in this module, you can maintain positive cash flow, build professional relationships, and focus on delivering quality services to your clients.
In the next module, we will explore the process of collecting feedback and leveraging satisfied clients to generate referrals, an invaluable strategy for growing your consulting business. Stay tuned for Module 7: Cultivating Client Relationships: Gathering Feedback and Nurturing Referrals.