As a contractor, chasing your client for money is often the hardest part of the job.
And, if you’re at the stage when you’re creating an invoice for the first time, every new client presents a new potential payment hurdle.
Step 1 – Creating an invoice
While every business is different, the must-haves of an invoice are almost always the same. Work through this checklist to make sure you’ve covered the basics:
- A unique invoice number (this is important to help file and track invoices, especially if you ever need to show them to HMRC)
- Your company name, address and contact information
- The company name and address of the customer you’re invoicing
- The date
Putting these components into a template will create your base invoice template. Then, you’ll need to provide details about the service or goods you’ve provided:
- A clear description of what you’re charging for
- The date the goods/services were provided (also called the supply date)
- The amount being charged and the total amount owed
- The VAT amount, if applicable to your business
Finally, there are some optional extras you can include to make your clients’ lives easier – and yours too:
- Your payment information – make it as easy as possible for clients to pay you, whether it’s including your bank details or an email address for a Paypal transaction. Setting it out in an invoice means less emails back and forth, especially if it’s sent to a different person or department on the client’s end.
- Payment terms, setting out when you’d like to be paid. 30 days is considered typical, but research shows an odd number like 21 days, accompanied by a ‘please’, is most likely to get paid quicker.
- Late payment fees can help ward off slow payers – even if you don’t intend to follow through, a warning of daily interest charges for late payment can help protect you from potential problem clients.
Step 2 – Establishing a pricing structure and terms of payment
When getting a business off the ground, you might be eager to just get your invoices out there – but it’s a good idea to have a clear policy when it comes to your pricing and payments: how much you charge for certain goods or services, and at which stage you expect to be paid.
Depending on what product or services your business provides, it may be reasonable to ask for a down payment. For construction firms, this could mean asking for material costs and a percentage of labour, for example. This will vary by trade, but there are some good principles that every business owner can follow when drafting an invoice.
Accepting down payments or deposits may also be suitable for freelance writers, designers and web developers, and applying fees for late payments (as suggested in the optional extras for invoices above) may also help to convince clients to pay on time.
Step 3 – Chasing late fees
The nightmare scenario: you’ve delivered goods/services, but you’re struggling to get the money owed by the client – meaning you’re out of pocket.
However, there are some measures in place to protect small businesses.
Unless you’ve agreed a separate payment schedule, payment is legally considered late if it’s not received within 30 days of the goods/services being provided, or the invoice received.
Outside of this period, you can charge a statutory interest rate of 8%, plus the Bank of England base rate. This is applied as an annual fee, divided by the number of days the payment is late.
Then, provided the debt lies within the last six years, you can also make statutory demands for payment.
Plus, invoicing software…
It’s not a strict necessity, but invoicing software can help take some of the work off your plate if you’re invoicing on a regular basis. Invoicing software can give you invoice templates, keep track of your in-goings and outgoings, and automatically email your clients when payment is due or late.
There are a couple of free online services that can help you to create professional, individual invoices which are tailored to each client. We like Crunch Invoice because it’s so easy to use, but InvoiceBerry is just as good. Tech Radar has a comprehensive list of other free software available here.
However, while they’re free they do have limited features – a set number of clients or templates you can use, for example. Signing up for the paid version gives you more flexibility, and might be useful if you need to send invoices to several clients at a time.
Here’s a list of other websites where you can find invoicing solutions:
