Common Invoice Payment Mistakes and Misconceptions That You Should Avoid

Invoice payments, though an essential aspect of any business, is an area where mistakes are easy to make. In this article, we will take a look at some common invoicing mistakes and how to avoid them.

Late Payment Penalties

Late payment penalties are fees businesses charge their clients when they fail to pay their invoices on time. These penalties are usually expressed as a percentage of the total amount owed and incentivize clients to pay their invoices promptly.

When a client pays an invoice late, you’ll need to update the payment ledger to reflect the late payment and any applicable penalties. You can use this information as evidence if you need to take legal action to collect the payment.

It’s worth noting that not all businesses charge late payment penalties. Some businesses may choose to waive penalties if the client has a good reason to pay late or if they have a long-standing relationship with the client.

Missing Information

Missing or incomplete information on an invoice can cause confusion and delays in payment, which is why it’s essential to include all the necessary — and correct — information on the invoice.

Below are the key elements you should always include in invoices:

• Invoice number – assign a unique invoice number to each invoice to make it easier to track payments and follow up on late payments.

• Date of the invoice – indicates the date that the invoice was issued.

• Description of the product/service – be specific and provide a detailed description so that your client knows exactly what they are paying for. 

• Amount due – clearly state the total amount that the client owes, including any taxes or other fees.

• Your business information – your business name, address, phone number, and email address.

• Client information – include the same information about the client as above.

Of course, you should also double-check that all the information is correct and complete and that there are no errors or typos.

Lack of Payment Methods

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Offering multiple payment methods is a good way to make it easier for your clients to pay the invoices you’ve issued to them. For this reason, it is important to be clear about which payment methods you accept.

Some of the most common payment methods that businesses may accept include the following:

• Credit cards – a convenient way for clients to pay their invoices. You can accept credit card payments by setting up a merchant account with a payment processor.

• Debit cards – these work like credit cards but deduct the payment from the client’s bank account instead of extending credit.

• Bank transfers – also known as wire transfers or Bacs payments in the UK. They allow clients to transfer money from their bank account directly to yours. You’ll need to provide your bank account details to your client to accept this type of payment.

• PayPal – an online payment system that allows clients to make payments using their PayPal account or credit card.

Be clear about which payment methods you accept in your contract or invoice terms. You can also include instructions on how to make the payment, such as the email address to send PayPal payments.

Unclear Payment Terms

Finally, your invoices need to have clear payment terms and policies to avoid any ambiguity that can cause payment delays or legal action against your company. 

For example, instead of offering “net 10” payment terms, which could lead to confusion about whether or not it includes weekends, it is better to state something along the lines of, “pay within 10 business days upon receiving the invoice” and specify the date of issuance. 

To avoid future disputes, it is important to make sure that both your business and your clients understand and agree on the terms and conditions, including your shipping policy, late fees, and refund policies.

If you are looking to raise capital by crowdsourcing for your investment plan, make sure to indicate clearly what your supporters get and under which circumstances. For some campaigns, you will only change if you reach your goals, while other campaigns might be more flexible.

Poor management of overdue invoices

Overdue invoices can cost you not only money but also time and energy from your accounts receivable team. Dealing with late payments or customers who aren’t motivated to pay promptly can result in worsening your relationships with your customers. This is why it is important to optimize the whole collecting receivables process internally.

To avoid coming across as a debt collector from The Godfather, create a solid and user-friendly collecting strategy. Above all, make sure to check whether your customers have had the chance to receive the sent invoice and if they have a clear payment method indicated.

Throughout the whole collecting process, train your team to level up their communication skills. The risky part of their job is the potential to push your customers away. Thus, it is essential to maintain a friendly and professional relationship every step of the way.

Takeaway

Invoice payment is a crucial aspect of running a successful business. By avoiding these mistakes and being clear and concise with your invoices, you can make it easier for your clients to pay for your services and improve your bottom line.