To help sole traders and micro business owners get a grip on their finances from day one, Lauren Wise at accounting software provider Pandle explains everything you need to know about receiving and sending invoices.
Invoices – the bane of many a small business or startup. Invoices coming in demand your attention when frankly you’d rather be concentrating elsewhere. Meanwhile, invoices going out can leave you pulling your hair out in a maze of confusion over formatting, record keeping, and “getting it right”.
This is tough because invoices, and managing them, are a fact of life for all businesses. You have to get to grips with them because even though they aren’t profit-earning in and of themselves, they are integral to the bottom line.
First of all, just because you’ve received an invoice doesn’t mean you should blindly go ahead and pay it. No, we’re not advocating defaulting on payments. What we are underlining is that invoices are prone to human error. Not everyone uses snazzy automated bookkeeping software like Pandle to stay on top of their invoices after all.
So first of all, you shouldn’t rush through a payment simply because of all those other demands on your time. You need to take the time to check the invoice against your expectations and receipts, and effectively to verify the purchase. Now’s the time to speak up if it doesn’t match your expectations – not after you’ve made the payment.
In order to do this stage properly, we suggest you keep on top of your invoices. Little and often, at a regular time, is much easier to handle. It means it’s a quick job rather than a looming time-sucker.
Read about incoming Making Tax Digital plans:
- Six need-to-know facts to help you prepare for Making Tax Digital
- Making Tax Digital – First draft rules for businesses published
- New Making Tax Digital timetable lifts three million small firms out of transition
Next you need to make sure you record all of the information within the invoice. You’re going to need this for many reasons – to help you quantify a nice healthy profit and to keep HMRC from chomping at your heels. You need to be able to provide a complete record of each and every payment made through your business, so get recording.
You then need to be able to match up your records with an audit trail – the way of checking that the records are correct.
Many small businesses turn to their trusty friend the spreadsheet at this stage. However, you’re introducing some extra steps to an already convoluted process if you do that. Instead and simple yet effective cloud-based bookkeeping software can do the hard work for you.
Make the payment
Only once you’ve completed the above steps should you then make the payment. However, remember to loop back to step two and update your records, unless that nifty software is doing it for you.
Don’t forget to look at the individual invoice for payment terms as these can vary. As a small business or startup you don’t want to be stung for late payment fees or interest, so do make sure you pay on time.
Fundamentally, your invoices need to be professional and accurate. They need to contain certain information, and they will generally all follow the same format.
In short, a good and correct invoice should include:
- Your business name
- Your contact details – the more you give, the easier it is to contact you if there is a problem
- The name and address of the person or business being invoiced
- An outline of the services or products provided
- How much the client or customer owes
- How they can pay you
- The terms of payment i.e. how long they have to pay
You can enhance your invoice by designing it in line with your business branding. For example, this might include your logo.
It’s worth noting at this stage that you can get information on the reasonable timescales you can expect for payment of an invoice and how to recover outstanding payments from GOV.UK.
You should also be aware that you need to ensure you have a nice, clean audit trail which tallies actual invoices with your books and your bank account.
It won’t be long until you realise that managing the invoices you send out becomes a data entry task whereby you’re completing the same form over and over. You’ll discover that you’re entering the same information in your records, and then in the invoice. Then when it’s paid (or not) you have to flip back and forth again. It ultimately becomes very tiresome, and can be fraught with mistakes.
Sign up to our newsletter to get the latest from Business Advice.