Well, invoicing can be a tough job for businesses of all shapes and sizes. But, what if I told you that by investing in automated invoicing software, you can not only manage a company’s accounting online but also get paid faster? Sounds interesting. Right? This blog will help you understand the best invoice payment terms for your small business and the benefits of using them. But, before we process further, let us know more about payment terms.
What do we mean by payment terms?
Online invoicing software lets you achieve effortlessly by adding the right payment terms to your invoice. But, what if you are not ready to invest in a full-fledged solution? Well, you can try out the best free invoice app for iPhone and create invoice from your mobile app with no hassles. Coming back to payment terms, they help you define the rules of sales agreements and clarify them with your customers.
For instance, if your invoice follows the Net 30 terms, it means your customers need to pay you in 30 days. Besides, when you add payment terms to your invoice, you can also streamline your budgets and manage cash flow with ease.
But, it is not practically possible that all customers pay you on time. However, with proper screening and the use of automated invoicing software, you can drastically reduce the chances of late payments.
So, comes the big question, what should customers be offered? Well, it largely depends on the business you own. For example, retail suppliers may give their customers some months to pay, whereas service businesses may require a deposit and would like shorter-term payments.
In the end, it is your sole decision what you want and not want to offer your customers. But, before you finalize a plan, it would be great if you get a hold of these payments and invoicing terms.
Top 10 popular invoice payment terms for small businesses
This is a no-brainer that we want quick payments for our products and services (and advances in some cases). But what if you have no idea what payment terms you can offer to your customers? Well, one idea is to analyze their credit history and then make a plan. You will come across some customers who never falter on payments while others who regularly miss theirs! Here is a list of payment terms you can use.
1. Advance payments
Gone are the days when customers were skeptical about paying advances. Today many businesses charge beforehand and ensure proper documentation to avoid any issues. You can easily manage the whole process using the best free invoice app for iPhone. Such payments are common in the legal profession, home renovation sector, and landscaping businesses.
2. Net 7, Net 15, Net 30, Net 45, Net 60
An old but good way to get payments faster is using net due invoices. All you need to do is set a due date using online invoicing software, and you are done. For instance, if you send a net 15 invoice on 1st August, your customers are expected to settle their dues on or before 16th August. This method is gaining popularity with small businesses as it leaves no scope for confusion.
3. 2/10 Net 30
While the terms sound fancy and difficult to comprehend, that’s not the case. It simply means that your customers will get a 2% discount if they pay you within 30 days.
You can even increase the discount amount if you would like to. These work best for larger invoices and help you get paid faster. Besides, it also incentivizes your customers for their good payment history.
4. Payment at the time of service
Well, this is a relatively easy concept to understand, just like you visit a restaurant and you pay for the food after you have eaten. You can set these terms to get paid as soon as you send your invoice. These are often used by doctors, exhibition owners, and craft shows.
5. Due upon receipt
Due upon receipt means that customers are liable to pay you when they receive your invoice. Earlier, clients paid vendors during their next payment cycle, but now with advancements in technology, you can receive it within a few hours to a few days.
You can easily create and send these invoices using automated invoicing software and the best free invoice app for iPhone. But, before you offer it to your customers as an option, make sure you have multiple payment gateways.
6. Advanced deposits
Taking advanced deposits means you will need some money to complete your services or create a product. This is ideal for businesses that make custom orders.
7. Recurring invoices
Well, recurring invoices can be easily made through automated invoicing software. Services that are chargeable at the same amount can make use of this payment term. All you need to do is add the amount in your online invoicing software and automate it. These invoices are ideal for consulting firms, web services, landscaping, and other small businesses.
8. 50% deposit required
Normally used by accountants and attorneys, a 50% deposit can also be charged by many small businesses. It is also common in the construction and home improvement segment, as it might take months to complete.
9. Cash on delivery (COD)
With online payment methods, the importance of this method has been reduced a bit. But, some businesses still prefer to use it. Cash on delivery requires your clients to pay you via cash when you deliver your goods and services.
10. Invoice factoring
While not the best solution for collecting invoices, it is ideal for small businesses short of cash. In this, you sell your invoice to a factoring company, which pays you some value of your invoice. Post that, the collection activity is their responsibility. Once they get the payment, they will keep their share and transfer the rest of the amount to your account. However, factoring fees can be extremely high. Therefore, it is suggested that you do your due research before taking any steps.
Benefits of having invoice terms
Here are some of the advantages of using payment terms in your invoices.
1. Reduced errors
Just like paper-based invoices, not having the right payment terms can lead to a lot of errors. In addition, with invoices coming over from all places, you will be in a rut when clearing your bills and collecting invoices.
Well, organizing all these and sorting them will not require much time if you use automated invoicing software. This way, neither you nor your clients will fall behind on payments. Besides, it will help both parties avoid cases of late payments and cut losses. A penny saved is a penny earned, and once the process is sorted, there will be no errors in your entire accounting process.
2. Sets grounds for negotiations
Adding payment terms, keeping track of payment deadlines, and expediting the process will help you set better negotiation grounds. But, how is that possible? Well, you can always document your process and share it with your leads. This way you will be able to convert them faster and even offer them attractive discounts.
Besides, with online invoicing software, you will be able to get early payments for bulk orders. This way, both your clients and you will be at ease and will be able to put your best efforts at work. As mentioned above, you can choose to offer discounts as well and maintain smooth relations with clients. However, you need to make sure that you don’t go overboard with the process and reduce your profit margins.
Also, if your suppliers are not interested in early payment discounts, you can still negotiate with them by having the right payment terms. Either way, you will be able to avoid dips in cash flow and other money-related issues.
3. Happy customers
No doubt, money issues can sabotage the best of client relations. Faster invoice processing is a great way to build a strong rapport with clients and build reliability for both parties. But, make sure that you are delivering all your services before time and then only asking clients to pay you on or before time.
With the best free invoice app for iPhone, you will be able to create a vendor portal and let clients track your invoice. This way, you will also save your precious time spent on the phone, mails, and messages following up with clients.
Besides, automated invoicing software will also help you make the whole process more efficient and faster. With improved business processes, you will have less stuff to deal with manually, and you will be able to focus more on customer services. In fact, you can also consider offering a self-service portal to clients who don’t wish to communicate for minor issues.
4. Improved cash flow
Faster invoice processing means a stable cash flow. More than anything, small businesses need to maintain good finances to run their business. You can always choose to draw a comparison and see your financial reports to see how your firm has benefitted by using the right payment terms. Undoubtedly, automated invoicing software will help you get the information in real-time and give you up-to-date information about where your money is.
While the effect on cash flow cannot be quantified, the data you will get will help you forecast trends and onboard new clients faster. Bonus? Your audits will be super easy and painless.
This was all about the best invoice terms and how automated invoicing software and the best free invoice app for iPhone can help you set these with ease. If you are looking for the best online invoicing software for your business, allow us to be part of your journey. We can be contacted at email@example.com or +1-805-491-9393.