If you provide goods or services on credit terms, your business can't receive money without sending out invoices. It's an essential part of business that pays (literally) to get right! To ensure your business and cash flow run smoothly, don't be caught out making these common invoicing mistakes.
1. Not including necessary information
Sometimes, when a business owner creates their own invoice using free online invoice templates, essential information is left out. When you create an invoice, it's critical — and legally required — to include the following information:
- the phrase 'Tax invoice' near the top
- business name or trading name and contact details such as phone number
- an invoice number
- Australian business number (ABN)
- the date the invoice was issued
- an itemised description of the goods or services provided, including unit price and quantity
- the amount of GST payable. This may be displayed individually for each item or as a blanket statement that the total price includes GST. (If your business is not registered for goods and services tax, you must state that the invoice is GST-free or indicate that the GST amount is zero)
- payment terms and details
- customer details, including their ABN for purchases over $1,000.
2. Failing to include a payment due date
If you want to get paid on time, you need to let your clients know when they need to complete their payment by. Specific dates work best as some old accounting terms are becoming outdated and even confusing.
Years ago, it was common to see "Net 30" stamped on an invoice. This means the customer has 30 calendar days from when the invoice was issued to make their payment. Some businesses still choose to use this term, but it's much more effective if you list a specific due date.
3. Losing track of invoices
Businesses are legally required to keep their invoices for at least five years. If you are printing invoices to mail out, you must keep a copy. Your records can be either hard or soft copies.
Filing your invoices effectively — either a paper copy or electronic records — increases efficiency when it comes time to submit your business activity statement (BAS) or income tax return.
4. Having limited payment options
While this isn't necessarily a mistake, it's easier for customers —and therefore quicker — to pay an invoice if it includes their preferred payment method. Traditionally, common payment methods seen on invoices were electronic funds transfer or cheque. With accounting software, your invoices can include a range of online payment options.
Accounting software provider, Xero, has digital invoices that include a "pay now" button for customers to pay instantly online through their preferred method. They can pay by card, direct debit, or digital wallets like Apple Pay and Google Pay. Accepting payments online can allow you to get paid faster — in fact, you can get paid up to twice as fast.
Invoicing online is the quickest and easiest way to manage your cash flow.
5. Forgetting to follow up overdue invoices
While most customers will pay their invoice by the due date, some need an extra nudge. Failing to follow up overdue invoices could mean you receive payments much later than expected, and could even mean you don't receive the money at all! The follow-up process can easily be done via email, text message reminders or phone.
Invoicing programs with automated follow-ups can make chasing money so much easier and help to save time.
How to invoice as a sole trader
Many people don't realise that invoicing as a sole trader is exactly the same as invoicing as a partnership or company. Each business structure must follow the same rules for creating an invoice — even if you're a sole trader.
If you are a small business owner looking to use a free invoice template, there are many online to download. As long as your invoice contains all the required information detailed above, you should be fairly safe. As your business grows, you may find that you're struggling to keep up with your invoice management. This is where invoicing software can help you keep track of records, save time and manage your payments.
Once you've got your invoice process sorted, you'll be able to keep your cash flowing smoothly while taking care of your business.