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Get your invoicing terms right - the 9 step ultimate guide
Managing your own business means you have to look after a multitude of administrative tasks. If you want to get paid, for instance, you have to invoice your clients. Whether you’re experienced or just starting out, freelance invoicing is one of the key parts of your business, so you want to get your invoice templates right.
Freelance businesses can sometimes have issues with getting paid, especially if not using proper invoicing software. In fact, Bonsai analyzed three years of freelance invoice data and discovered that 29% of freelance invoices are paid late.
Effective invoices can help nip that problem in the bud. To be effective at invoicing, you need to understand invoicing terms. After all, problems with invoicing terms could mean the invoice gets in the wrong hands, you don’t get paid, or you don’t get paid when the invoice is due.
If you plan to handle your invoicing on your own, here are the 9 key things you need to know about effective invoicing terms.
1. Clear contracts
The first step in having success with invoices is to have a freelance contract with your client, and ensure the contract spells out all the payment factors that will be part of your invoices. That includes the invoicing terms we will spell out below, such as how many days after project completion you expect payment, and whether there are late fees.
You can also consider payment plans for large pieces of work. For instance, your contract can spell out that you will get paid half the amount when the work is 50% complete, and the remaining half when the work is complete. Then an invoice midway through the project won’t surprise the client.
2. Due date
Not to be confused with the invoice date, the due date is the date by which you require payment. The invoice date is simply the date the invoice is created. The due date is the final date payment is required from the client. Make sure your invoice clearly spells out invoice date vs. due date.
It’s important for you to determine the appropriate lapse in time that you’re prepared to wait between finishing a job and wanting the money in hand. It’s best practice to invoice as soon as the work is complete, and don’t make the due date too far after that. Two weeks is fair, and a month is probably the longest timeframe you want. You need to ensure proper cash flow, and waiting months to get paid is not the ideal situation for any freelancer.
As well, spell out the actual date for the client, to make it as easy as possible for them to know when you expect to get paid. For instance, don’t state that payment is due in 15 days. If the invoice date is March 15 and your payment schedule is a two-week period, then state that payment is due on or before March 30. If you can live with a 30-day period, state the due date as April 15.
In fact, it could be argued that besides the amount owing, the due date is the most important part of your invoice. Consider stating the exact date payment is due in bold letters and in its own box in a prominent part of the invoice.
Don’t expect your client to find the invoice date and do the math. Make it easy.
3. Work performed
As part of your invoice, you should clearly outline the work performed. Ensure it matches what you agreed to do in the contract phase.
Longtime freelance writer Kim Maciejewski has valuable advice in that regard:
“Rather than writing one large description for ‘work performed’ create a new invoice line for each individual assignment…If you are maintaining multiple contracts for a single client organization, consider invoicing out individual projects rather than grouping together. A clear price for each task makes it easier for the client to route to multiple approvers or double-check their records to ensure the work was performed and approved.”
4. Payment terms
There are several other payment factors that are key for you to include in your invoicing terms:
- Most important, the total amount owing. This should include a breakdown of the work performed, the fees charged for that work, as well as any expenses, taxes or other charges, and the grand total due.
- Accepted forms of payment. For instance, do you accept cheques, credit cards, Stripe, or Paypal.
- The currency, if you work across borders or work remotely and serve clients in other countries.
- The invoice number. This is essential for you as part of your tracking system. It’s also important to the client, particularly if you have to follow up with them. You can cite the invoice number in a subsequent payment request.
5. A clear invoice
It’s essential that your invoices are clear and easy for clients to understand. The most important parts of the invoice need to be precise: what work was done, how much they owe you, and when they need to pay you.
If you need to, reach out to other freelancers or even clients for feedback and to get your invoices reviewed for clarity. You may think you’ve spelled everything out clearly, but if your language is vague or ambiguous, there’s a greater chance that you won’t get paid on time.
Be sure to include your business name and logo as well, to ensure your invoices are professional and branded.
You can also consider using an online tool to help automate your administrative tasks. Things like tracking hours for a client, sending and following up on invoices, can be automated to save you time.
For instance, Bonsai offers a free trial for its services, which has an integrated invoicing tool that creates and customizes invoices. You can generate an invoice automatically from any proposal, contract or time sheet.
6. The correct addressee, submitted properly
Before sending an invoice, make sure you know where to send it, and how to send it. For instance, you may have done work for a specific branch of an organization, but it’s another branch that looks after paying you. It’s essential you know exactly who is in charge of payments, even if it means a phone call to be sure. Incorrect invoices could be sent back or sit unpaid.
As well, be sure you know how the invoice needs to be sent. You may prefer email, but the customer may prefer traditional paper invoices. If possible, see if you can transition a customer to an email system to make your life easier.
7. Overdue terms
Since you have an invoice due date clearly marked, it’s good to also include a late fee as one of your invoice date rules. Adding a notice of late fee can add some urgency to the invoice, and could mean you will get paid on time.
To determine a late fee, you can choose a flat rate or a percentage. Again, this should have been part of the initial contract, so seeing it on an invoice won’t surprise the customer.
If the customer is late, the additional fees should be added as a line item on your follow-up invoice, with a clear description of why it is being charged.
Late fees can help ensure you get paid promptly. If you do have to chase after clients, the late fee won’t make you rich, but it should help compensate for the time and energy spent trying to get paid.
8. A few extras
There are a few additional items you can consider adding to your invoices. While they aren’t considered formal terms, they may be points you want to include after a successful piece of work is complete.
For instance, including a thank you note in your invoice is a nice personal touch that will also let the client know that you’d like to work together again in the future.
Another example is a request for a testimonial. If you’re confident the client was happy with your work, you can include a feedback form and ask if the client would be willing to let you use the feedback in future proposals, or on your website.
9. Follow up
Finally, it’s important that you have a system in place to follow up with clients. You need to track when payment is due, so that you can send a friendly email as the due date approaches. You’ll need to follow up again, perhaps with a phone call, if the due date passes and you still haven’t been paid. If you have included late fees as part of your invoicing terms, a subsequent invoice should be sent that includes the late fee.
Invoicing clients, tracking payments, and following up if they don’t pay, is not the most enjoyable aspect of running a business. In fact, it can be daunting to have to phone a delinquent client. But it’s an essential part of running your business, and your clients should understand that you need to get paid in order to remain in business.
Invoicing does take time and effort, but it’s vital to a successful freelance business. Now that you understand invoicing terms, consider exploring the integrated tools available to you as part of Bonsai’s freelance suite by signing up for a free trial now.