Did you know that cash flow is one of the top reasons small and midsize businesses (SMBs) fail?
LendingTree came up with an analysis of the U.S. Bureau of Labor Statistics (BLS) data. It revealed that nearly 20% of businesses fail within the first year. Almost 50% reach five years while over 65% hit ten years.
More than just gaining profits, ensuring consistent cash flow is key to business growth and success. The ultimate goal is to earn more than you spend on your company. There are several ways to maintain a good cash flow, one of which is to optimize your invoice process.
This article shares actionable invoicing tips for businesses, especially for B2B companies. Keep reading to learn how to maximize your cash flow.
The Importance of Invoicing in Your Cash Flow
Companies must consider setting a streamlined invoice process in place. Doing so will ensure they get paid for the products sold or services rendered. Unfortunately, some companies have poor invoicing systems. Below are some scary statistics from Amalto:
- Almost 40% of all U.S. invoices sent get paid late.
- More than 60% of late payments are due to incorrect invoices.
- Over 10% of customers never receive their invoices at all.
It’s one thing to create invoices for customers; it’s another for B2B clients.
The former requires immediate invoices and prompt payments while the latter isn’t as transactional. B2B buyers go through omnichannels to conduct transactions, seek approvals, and make payments. Think of the following:
- Account invoicing
- Bulk product orders
- Individual shopping list
- Departmental purchase
With poor invoicing, B2B companies might compromise their collections. Take the statistics on late payments generated by Tally Street in 2021. Below are percentages of SMB sales collected late by B2B companies:
|Timeframe||Percentage of Late Payment|
|1-30 Days Late||40%|
|31-60 Days Late||10%|
|61-90 Days Late||4%|
|More than 90 Days Late||3%|
Based on the table above, there’s a need to streamline your invoicing to ensure timely payment collections. For example, automate your process for generating invoices, sending bills electronically, and collecting payments from B2B buyers. That helps you create a steady income and consistent cash flow.
Read the following section to learn more about proper invoicing and optimizing cash flow.
What is invoicing?
Invoicing is the process of creating and sending invoices to customers or B2B clients. The end goal is to collect payments from them for the sold products or hired services.
An invoice is a time-stamped commercial document that details the transaction between a buyer and a seller. Specifically, an invoice shows the cost breakdown, which includes the following:
- Quantities of the products and services delivered
- A subtotal of net costs
- Any discounts
- Any additional taxes
- The total amount owed
Also, have the following in your invoice:
- Business name
- Contact information
- Customer’s name and address
- Date of the sold products or provided services
- Invoice reference number
- Invoice date
- Due date
- Payment methods
- Payment policies
Furthermore, an invoice can be in the form of a:
- Paper receipt
- Sales invoice
- Bill of sale
- Debit note
- Online electronic record
What is cash flow?
Cash flow is simply the movement of money in your company. It refers to the financial resources going in and out of your business bank account. The money received is your inflow, while the money spent is your outflow.
Note that your primary goal is to make money for your business. However, you have several expenditures to keep your business up and running. To maintain a consistent cash flow, strike a balance between your income and expenses. You should earn more than you spend on your business.
Invoice creation is one of your company’s operating costs. Imagine a bulk of paper bills sent to customers or B2B clients for purchased products. Automating your invoicing process and sending electronic invoices are more cost-efficient. They are viable solutions for reducing your operating expenses and generating more income.
The impact of invoicing on your cash flow
Invoicing is crucial to maintaining cash flow. In fact, BBC recommends streamlining this process to improve your cash flow. Proper invoicing ensures efficient payment collections from customers or B2B clients. Optimizing your process also helps reduce your invoice expenses.
When you create accurate invoices and send them to customers in advance, you’ll most likely receive payments on time. If your invoices educate these customers about different options, they’ll be properly informed and guided. That will translate to robust collections and avoid payment delinquency.
Additionally, automating your invoices will help you save money, time, and effort. Such an investment might be costly at the onset; however, it will pay off in the long run. The same proves right for sending electronic invoices to customers or B2B clients.
Ultimately, your cash flow goal is to earn more than you spend. Optimized invoicing results in robust payment collections and reduces your invoice expenditures. It will help you maintain a consistent cash flow.
Learn more about maximizing your cash flow through our invoicing tips below.
How To Improve Your Cash Flow Through Proper Invoicing
Earlier, we established how invoice optimization maximizes your cash flow. Now, let’s cover 12 actionable tips for achieving this business objective.
That said, here’s how to improve your cash flow through proper invoicing:
1. Come up with detailed invoices
Generally, invoices inform individuals or businesses how much they should pay for the products bought or services received. However, it’s best to include all the necessary details your customers or B2B clients should know. Thus, consider all the information pieces presented above for your invoices.
Ron Apke, COO of Land Investing Online, says that invoices don’t only inform customers about their payment obligations. “They also educate them and give them options. That way, they won’t have further questions and will pay immediately.”
2. Send out invoices in advance
It’s best to send customers their invoices way ahead of time. If possible, provide them with the necessary bills after the product purchase or rendered service. The earlier you send them, the more promptly they’ll most likely pay.
The problem with sending invoices late is that customers have no room for financial preparation. Chances are, they become delinquent in their payments. They can justify that they receive their bills late, so they shouldn’t get charged with any late fee.
3. Ensure constant communication with customers
It’s crucial to maintain open lines of communication with your customers. Even after sending invoices, set payment reminders through emails or phone calls. That way, busy and preoccupied customers or clients won’t forget their financial obligations.
Dean Kaplan, CEO of Kaplan Collection Agency, takes pride in their collection services with an 85% success rate. “What’s important is to ensure constant communication with your customers or clients. Don’t only ask for payments; help them keep up with their financial obligations.”
4. Number your invoices
Numbering your invoices is best for recording or tracking purposes. It will be more seamless for you to monitor paid or unpaid bills. But while at it, include an invoice ID or reference number.
Jarret Austin, Owner of Bankruptcy Canada Inc, helps people rise above their debt problems. “We advise our customers or clients to stay on top of their financial obligations. It’s best to settle their debts right away to avoid having their finances spiral out of control.”
5. Simplify your payment process
Nothing is more annoying and frustrating than a complicated payment process. When faced with such a circumstance, customers might find it hard to pay on time. Of course, you don’t want this to happen.
Thus, simplify your payment process by making it faster, easier, and more seamless. Make sure to include the online payment services and options on the invoices. Doing so helps guide your customers or clients in making payments to ensure robust collections.
6. Provide various payment options
Customers have higher expectations than ever since they now demand more options. This idea essentially applies to payments as well. As such, make sure to offer multiple retail and eCommerce payment methods. The more options there are, the more likely they will pay on time.
Take the list presented by Balance for your reference. Here are various payment methods used by B2B companies:
- Checks (81%)
- ACH (64%)
- Credit cards (48%)
- Cash (45%)
- Debit cards (19%)
- Same-day ACH (13%)
- ePayable with virtual cards (11%)
- Digital wallets (11%)
- Cryptocurrency (8%)
7. Charge interest on late payments
Sure, customers splurge on goods or services. However, they become frugal when it comes to extra charges. As much as possible, they want to pay on time to avoid late fees. Thus, charge interest for delinquent payments to encourage them to pay promptly.
John Li, Co-Founder & CTO at Fig Loans, helps customers or clients settle debts and build credit standing. “Timely payments help people or businesses avoid preventable interest and poor credit scores. Therefore companies like ours are committed to providing customers or clients with extra cash whenever necessary. The key goal is to help them pay their obligations or financially recover.”
8. Offer discounts for early payments
Charging interest for late payments is one thing; offering discounts for early payments is another. The latter is more encouraging than the former. Customers are more likely to pay on time when you offer discount bait.
Thus, highlight your discount offers for timely payment on your invoices. While at it, optimize your payment processing. You can even go as far as offering payment gateways for your customers or clients’ benefit.
9. Use electronic payments
The world of business has gone digital in recent years. Keeping up with the retail and eCommerce payment trends is best for your company. Therefore, offering electronic payments to your customers makes sense. However, educating them about these should be your initial step.
That said, include this vital information on your invoices. Inform how they provide customers or clients with ease and convenience. For example, let them know how an automatic clearing house (ACH) payment benefits them as a recurring monthly payment.
10. Automate your invoicing
eCommerce automation has become a game-changer in business. For the uninitiated, it eliminates manual work and makes processes more efficient. And this technology essentially applies to customer/client payments.
Nate Tsang, Founder & CEO of WallStreetZen, suggests harnessing the power of automation. “Automate your invoice processing, from generating invoices to collecting payments. The latest software will help decrease invoice expenses and collect more money from customers or clients.”
11. Track your invoices and payments
Invoices make a world of difference in your company. They help in your business accounting and bank reconciliation. However, make sure to track your invoices sent and payments received.
To stay on top of your finances, employ proper bookkeeping and regular accounting. Segregate paid and unpaid invoices, and let your specialized department go after those unsettled bills. Remember: The goal is to earn more than you spend on your business.
12. Consider invoice factoring
The last solution is invoice factoring, a form of alternative financing. Through this, you sell your outstanding invoices to a third party and receive payments immediately. Now, your contracted vendor is responsible for collecting money from your customers.
Gates Little, President/CEO of altLINE Sobanco, underscores the benefits of invoice factoring. “You immediately get the money you deserve for selling products or providing services. You need not worry about chasing after payments. That is a viable solution for maintaining a consistent cash flow.”
Managing Invoices to Maximize Cash Flow
Invoice management is no easy feat. However, always stay on top of your invoicing process, whether you run a B2C or a B2B company. Doing so helps significantly improve your cash flow.
That said, consider the 12 actionable invoicing tips recommended above. They will help you collect more money from your customers or clients. On the flip side, some of these practical tips will significantly reduce your invoice expenses.
Strike a balance between your income and expenditures to maintain a consistent cash flow. Proper invoicing will help maximize your cash flow, which translates to business growth and success!