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Saturday, December 2, 2023

Getting paid on time: The basics of invoicing for SMBs

Growing your business requires timely customer payments to survive and remain sustainable. When they don’t pay on time, your cash flow is impacted and may result in the need to borrow money to pay your suppliers, service providers, and staff. For these reasons, invoicing is one of the most important processes to get right.

The following are important tips to improve payments:

  1. Invoice accurately and in compliance with SARS regulations

The first step to getting paid quickly is sending an accurate invoice with all the necessary information to your customers. Invoices that are unclear or include errors will make you look unprofessional. Your customers will probably send them back to you to be fixed. That means you’ll wait longer for the money to hit your bank account.

In the B2B world, your bigger customers may have specific requirements about the details you should include. The usual information includes your contact and company details, purchase order numbers, date of issue, an invoice, and a breakdown of costs for different line items. It’s worth checking upfront which information customers want on the invoice and what formats they prefer.

If you’re registered as a VAT vendor, you need to keep a digital or paper copy of all invoices issued, including any issued in error or cancelled. A VAT invoice must contain additional information to a non-VAT invoice. There are two types of VAT invoices: a full tax invoice where the supply, including VAT, exceeds R5 000, and an abridged tax invoice where the supply, including VAT, is R5 000 or less.

An abridged tax invoice must meet these five criteria:

  • The words “Tax Invoice”, “VAT Invoice”, or “Invoice”.
  • Name, address, and VAT registration number of the supplier.
  • Serial number and date of issue of invoice.
  • Accurate description of goods and/or services.
  • Value of the supply, the amount of tax charged, and the consideration of the supply (value and the tax).

An unabridged invoice must include the above and the following:

  • The recipient’s VAT registration number (if VAT-registered), name and address.
  • The supplier’s name, address, and VAT registration number.
  1. Set out the payment terms clearly

It’s your responsibility to predetermine payment terms with your customers. Make it easy for the recipient to know when to pay by clearly stipulating this on your invoice. If you’re a small business or contractor, it’s generally best to avoid complicated payment terms to avoid being misunderstood and having payments delayed. For the best results, simply state: ‘Payment due within 30 days.’

Ask your customer when their payment run is and their invoice submission’s cut-off date. Large companies often have 90-day payment policies, which can wreak havoc on cash flow for freelancers. Some will allow you to invoice early in a project to get regular payments, but their terms are often inflexible. It’s important to plan for this in your financial management.

  1. Offer easy payment options on your invoice

Include in your invoice the different methods of payment you accept, together with your bank details to make it easy for your customers to pay you. Ensure it’s easy for them to find your banking details on the invoice. Some payment platforms even let you include a click-to-pay button in your digital invoice. When dealing with consumers rather than businesses, offer them various convenient payment options, including debit and credit card, QR code, EFT, and instant EFT.

  1. Have a plan for late payments

Everybody hates chasing late payments and it takes up valuable time you could put to better use. Your best line of defence is what you do before the invoice is issued:

  • Ask for the name and contact details of the person making your payment so you can chase them directly.
  • Have clear terms and conditions (Ts & Cs) and obtain an agreement in writing (paper signed or by email).
  • Agree on your payment terms in advance as part of your Ts & Cs.
  • Ask new customers to pay their first invoice in advance.
  • For large invoices, ask for a staged payment. If payment is delayed at any stage, you can stop work to avoid risking further costs.
  • Issue reminders as soon as the due date has passed. Don’t ever ignore late payments hoping they will get paid without asking.

Some accounting solutions will automate parts of the invoicing process, minimising the need for manual data input, and room for error. Accounting solutions will also help you manage your time better. They can send professional invoices for you as you process your orders instead of manually completing and sending invoices. This gives you more time to focus on important and strategic things like building your business.

By Viresh Harduth, Vice President, Small Business, Sage Africa & Middle East

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