Getting paid is much more enjoyable than paying your bills. That said, the billing process you have to follow to get that money can be time-consuming.
The good news is that there are many ways you can create a better billing workflow that eliminates some of the manual work while ensuring you still get paid on time.
Here’s a closer look at the billing process and a few tips to improve yours.
What Is Billing?
Billing is the process you follow to send your invoices and get paid. You may have also heard of it referred to as the invoicing process or billing procedure. All three refer to the same thing.
What Is the Process of Billing?
The billing process starts with a quote, which is where you give customers an estimate of the total cost of their order.
Once you complete the order and deliver it to them, you create an invoice to request payment.
Finally, you record the transaction in your sales ledger after the customer pays you.
Bill vs. Invoice: What’s the Difference?
The difference between an invoice and a bill depends on who’s looking at it. If you create the document and ask for the payment, you see it as an invoice. Your customer who receives the document sees it as a bill.
Another slight difference is that “bill” is a more general term. It includes invoices as well as any other document that shows a summary of what a customer owes to a business. Getting a bill also usually means you need to pay right away, like when you get a medical or electric bill.
On the other hand, you often have more time to pay an invoice before it’s considered overdue. One of the most common invoice periods is “net 30,” which means the payment is due 30 days after you create the invoice. So, if you create an invoice on March 1, the payment due date becomes March 31.
Other common pay periods are net 10, 15, and 60. Whatever pay period you select, that information goes on the invoice along with the itemized bill so the customer knows when they have to pay you.
An itemized bill shows the cost of each individual item purchased as well as the total. It’s like when you go to a restaurant and your bill lists every food and drink item you ordered, so you know you’re only paying for the things you actually received.
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Invoicing clients can also be referred to as offering a trade credit since you let the client buy something from you and pay later. Offering trade credit to your customers helps build stronger relationships by giving them more flexible payment terms. Doing so shows that you trust them to pay, which in turn, can encourage them to like and trust you.
Now that we’ve covered the definitions, let’s look at what a bill or invoice contains.
How Do I Bill My Customers?
Creating an invoice with the correct information is the first step in billing your customers after you’ve completed their purchase order. Here’s an invoice template you can download to send to your customers. Just click "Make a copy" to edit your own.
If you want to create your own, you’ll find further below everything you need to include on your invoice to bill your customers correctly.
- Company contact information: Company’s name, address, and phone number. You can also add an email address for another way to have customers contact you.
- Client contact information: Customer’s company name, address, phone number, and email address.
- Invoice date: Usually the same as the date of purchase or the day you completed the customer’s purchase order.
- Invoice number: The unique number on the invoice that helps you keep track of it.
- Itemized list of products or services provided: A breakdown of all the items your customer bought, along with a description of the product or service and the cost of each item.
- Total amount due: The final payment amount, including sales tax and discounts.
- Payment terms: When the payment is due and what forms of payment you accept.
- Relevant billing information: Any information your customer would need to send you a payment. For example, you may need to include bank account information for direct deposits or your company’s PayPal account name for online transfers.
Now let’s look at the whole invoicing process.
How to Do Billing and Invoicing
There are three main steps for you to follow when doing billing (or invoicing):
Step 1: Create the Invoice
As we mentioned earlier, an invoice lists all the products and services you’re billing for, the total cost, and the payment terms. You can use our template or accounting or invoicing software to create digital or printable invoices.
If you only need to send out a few invoices, our invoice template gets the job done without having to invest in anything new. But a benefit of using a software solution is that it’s much faster than creating paper invoices by hand. Another benefit is that you can automatically format your invoices to make them easy to read and understand.
Step 2: Send it to Your Customer
Once you’ve completed your invoice, it’s time to send it to your customer. You can do this by sending it through email, mail, or fax.
Whichever method you choose, try to send the invoice the same day you created it. Doing so gives your client enough time to review the invoice and pay on time according to your terms.
Step 3: Log Your Customer’s Payment
Lastly, you need to record your customer’s payment when you receive it. If you use billing software to create your invoices, you should have the option to mark the invoice as paid. You should also be able to write down the date the customer paid and their payment method.
9 Simple Tips for Improving Your Billing Process
Once you have the basics down, you can work on speeding up your billing process through automation and other tools. There are also things you can do to avoid issues like late payments. Let’s look at these and more in our top tips.
1. Make Your Invoices Easy to Read
If your invoices are hard to read or understand, your customers may put them aside as a task to figure out later. This can result in delayed or even late payments.
Choose easy-to-read fonts and make sure the text is large enough. Then, use a logical format.
Most invoices include contact information at the top, an itemized list in the middle, and the total amount due and payment collection terms at the bottom.
2. Make Sure Your Invoice Is Accurate
Sending accurate invoices makes the process smoother for everyone. To ensure accuracy, make sure you’re charging for the right products and services, and double-check that the price of each item is correct. You also want to make sure your invoice includes any discounts you may have offered a customer.
Let’s say you make a mistake, such as charging the wrong price for a service. If your customer notices, they’ll have to contact you and explain the error. Then, you need to go back and edit your invoice and send them a new copy.
These extra steps get in the way of timely payments and add extra work for you and your customer.
It’s also helpful to include specific descriptions of each item you charge for so your customer can easily recall the purchase.
For example, if you did a repair job for a customer, it’s clearer to say “kitchen sink repair” instead of “repair.” If your client sees vague line-item descriptions, there’s a greater chance they’ll contact you to give them more details—delaying your payment.
3. Keep Proof of Sale Documents
Proof of purchase documents include customer contracts and purchase orders. These are documents your customer sends you, and they include exactly what the customer wanted to purchase from you.
Documenting your sales can help you deal with any disputes during the invoice process. For instance, a customer may reply to your invoice and say they didn’t purchase one of the items and don’t want to pay for it.
If you have a customer contract or purchase order proving they ordered the item, you can support the charge.
4. Offer Multiple Payment Options
When you offer several payment options, your customers can choose what’s most convenient for them. This luxury of choice makes it more likely that they’ll pay you immediately since they don’t have to figure out a new payment method.
Consider including online payment processing options like direct deposits and debit or credit card payments. These are easier and faster than writing checks or having customers call you with their payment information.
5. Create a User-Friendly Payment Portal
Many bookkeeping and accounting software providers have features that let you create an online payment portal. It gives your customer a fast and easy way to pay you. When you set up your payment portal, do a test run to verify that all the information is clear and that the payments actually go through.
You want to ensure that your customers can pay you in one attempt and that they don’t have to contact your team with questions about what something means or how to use the portal.
6. Automate Reminders
We’d like to think that late payments happen because customers have a lot on their plates. They’re not trying to withhold your money but might forget to open that invoice email. You can send reminders of upcoming due dates and help them remember to pay on time.
While this is an excellent way to nudge your customers, it can be time-consuming to do so for multiple customers.
The good news is that you can usually automate this with your billing software. Simply adjust your settings so the software sends follow-up emails for any outstanding invoices at the intervals you set.
For example, you might have the program schedule to send reminders on the invoice’s due date and at three, seven, and 14 days past due.
7. Give Incentives for Early Payments
Early payment discounts are price reductions you give to customers who pay their bill before it’s due. For instance, you may give clients 5% off if they pay within 7 days instead of the net 30 due date.
Also known as prompt payment or early settlement discounts, these incentives give your customer a benefit for paying quickly. It’s a win-win; your customer gets to save a little money, and you get better cash flow because you’re not waiting long for payments.
8. Add Late Fees
Another strategy that helps with on-time payments is including a late fee in your payment terms. An example of a late fee might be an extra $50 charge for overdue invoices. Keep in mind that you want to keep these payments reasonable—typically under $75.
At the end of the day, you want to get paid on time and build long-term customer relationships. If you use late fees, communicate them clearly and early on. It’s best to verbally tell customers about your late fee before including it in the invoice’s payment terms.
9. Keep Copies of Every Invoice
Saving copies of your invoices can help you keep track of your accounts receivable, which is all the money your customers owe you but haven’t paid yet. You can also track invoices over time to learn more about how cash flows into your business.
For instance, if you own a landscaping business, you may see that your busiest seasons are in the spring and summer, while winter may be especially slow in terms of income. Understanding cash flow helps you know when income will be relatively high or low so you can adjust expense planning.
Holding on to invoice copies is also helpful if you’re chosen for an audit, which is when the IRS goes over your finances with a fine-toothed comb to make sure that you’re reporting income and paying taxes correctly. Invoices are like your receipts that show exactly what customers paid you and why.
Your business can be chosen for an audit randomly, or it might be selected if your tax return isn’t like other businesses of your size. For instance, if your taxes are much lower than other businesses, this could be a signal the IRS uses to decide to audit your finances.
Final Thoughts on Creating a Smooth Billing Workflow
Invoices are the documents you use to request payment for the services or products you provide to a customer. In the billing process, you create invoices, send them to your customer, and then record your customer’s payments.
Creating clear invoices and sending them on time can help your customers pay you faster and improve your business’s cash flow. Not to mention, online tools like payment portals and automated reminders can make it even easier.
Now that you know what goes into an efficient billing process, you can tweak yours to make it run smoothly.
