NASE News

The Self-Employed Guide to Better Billing

Read this article in PDF form here.

By Kim O’Connor

The way you handle billing could be costing you money.

An independent study funded by Intuit in 2008 found that America’s small businesses wait for $33 billion in overdue payments each year. Nearly 40 percent of small businesses have invoices that are more than 30 days old. Worse, 20 percent forget to issue an invoice in the first place or fail to follow up on overdue accounts.
By taking a few simple steps, you can reduce—if not eliminate—the money your business loses because of bad billing practices.

Implement A Billing Policy

Implementing a billing policy is a three-step process.

1. First, every business owner should develop a written policy that describes:
   
   • Billing cycles
   • Payment requirements
   • Collection procedures
   • Consequences for late payments
   • And possibly even incentives for early payments
     
     The length of your billing cycle and your payment requirements depend on a number of variables. Some small businesses bill on once- or twice-a-month cycles. Others bill before (or just after) goods or services are delivered. Some businesses offer lines of credit that allow the account to be paid down in installments.
     
     “Look at what the routine is in your community or in your industry,” says Gene Fairbrother, the lead consultant for NASE’s Business 101 program. “You’re not going to do it any differently.”
2. After you’ve crafted your billing policy, educate your customers on its particulars.
   
   Ideally, you should have a signed payment agreement or contract on file for every customer, but use your discretion when it comes to long-standing business relationships. Go over your policy with all new customers before they sign. Then provide a short summary at the bottom of every invoice.
3. The final—and most important—step is to consistently apply your new policy.
   
   That is not to say that you should be inflexible when extenuating circumstances arise. Send bills on time and remind customers about your policy whenever a follow-up is required.

Handle Billing Methodically

It’s important to get on a regular schedule with your billing tasks.

“Often small businesses bill as they think of it,” says Jessica Scheitler, owner of Financial Groove, a ookkeeping firm with offices in Las Vegas and New York. “We put it on the back burner because it’s one of those things we don’t want to do.”

Instead, make it a point to send all invoices promptly. Depending on the volume of invoices and the type of sales your business makes, this could happen as often as every day or as infrequently as once a month. Either way, handle billing in batches so you can sort through it systematically in one sitting.

A methodical approach to billing will benefit you and your clients.

“Your client can get used to seeing those invoices in the mail just like they do with a utility bill or the rent,” Scheitler points out. “Then they can pay them consistently and work it into their cash flow plan.”

Scheitler also recommends using a single, integrated software solution for invoicing and bookkeeping. Don’t use a separate program like Microsoft Word or Excel for invoicing; neither has the capability to track the invoice over time, so you’ll have to reconcile it by hand.

Also, be vigilant about collecting complete contact information from new customers and keeping it up to date.

Vital information includes:

• Mailing address
• Physical address
• Email address
• And two phone numbers

If you’re dealing with another business, make sure to get the full names of the owner as well as the person who handles payments.

Provide Payment Options

Increasingly, the world is moving away from traditional transactions with cash and checks. If your business doesn’t accept credit cards, it should.

Becoming a credit card merchant is much like applying for a credit card. Different terms are available, so it pays to shop around.

If you don’t want to go through that process, or if your application is rejected for some reason, PayPal offers processing products that allow you to accept credit cards in person (via an online terminal) or through your own website. Go to merchant.paypal.com for more information.

Follow Up On Overdue Accounts

Generate accounts receivable reports on a regular basis so you can catch overdue accounts as they surface.

Depending on your policy, you might want to resend the invoice or touch base with the client after two weeks. If the debt lingers for more than 30 days, it’s time to get proactive.

Scheitler recommends using more than one medium to communicate with clients.

“You have to reach out to customers who are overdue in more than one fashion,” she says. “If you’re only emailing your invoices, you need to stick something in the mail and follow up with a statement.”

And don’t forget to pick up the phone. Since time is of the essence, direct forms of communication are best.

“The longer you allow a debt to go, the less chance there is that you’re going to collect it,” Fairbrother says.

He recommends addressing the root of the problem by talking to customers about the reason behind their delinquency.

“If a client hasn’t paid you, one of the things you want to find out is why,” he says. “Is it because of cash flow? Did they forget? Or was there a problem with the product or service? If there’s a dispute over what you provided, then you’re obviously going to have to deal with that before you get any kind of payment.”

Throughout this process, make sure you keep good records of all conversations about the account as well as copies of emails, faxes and mailings. While you should always be polite and professional, don’t worry about stepping on toes.

“You don’t need business that doesn’t pay you money,” Fairbrother points out.

“If they say, ‘You can forget my business,’ well, good riddance.”

Look For Ways To Resolve Problems

Whenever possible, work with a client to find a way to resolve the debt. Some options include discounts, installment plans or a financing charge.

Be flexible when you can, but also use your judgment. It makes sense to accommodate a long-standing client with a temporary cash flow problem. Extending a line of credit to a new customer, on the other hand, might be unwise.

Turn to alternatives like small claims court or an independent collection agency only if you’ve exhausted all other avenues. (This is when that signed payment agreement and your careful record keeping will come in handy.)

In some cases, pursuing collections might not be worth your time and effort. Collection agencies often work on commission, but they’ll only pursue larger debts and they’ll usually keep half of what they collect.

If it looks like the collection costs are going to exceed the debt, write it off.

Think about what went wrong and adjust your billing policy, if necessary. Even when you aren’t paid, it’s possible to learn something of value.


Kim O’Connor, a freelance writer in Chicago, uses Billings software to manage her invoices.


NASE Resources To The Rescue
Legal Club of America Small-Business Plan: You have access to a national network of attorneys at no cost or reduced rates. Attorney-provided services include two initial phone calls per month made on behalf of your business, up to 10 initial collection letters per month and much more.

Pitney Bowes mailstation 2: Dropping lots of billing statements and invoices in the mail to customers? Use the all-in-one mailstation 2 from Pitney Bowes. This postage meter is fast, easy to use and will save
you loads of time. Plus, you can print promotional messages right on your mailing envelopes!

Business 101 Experts: Let the NASE micro-business consultants help you develop billing and collection procedures that really work. Unlimited access to the consultants is included in the cost of your NASE Membership.

3 iPhone Apps For Better Billing
Use these iPhone apps to boost your billing power.

1. Best For Service Providers: Billings Pro Touch
   This app helps you track your time, create estimates and invoices, and leverage powerful reporting features. You can download a basic version for free, but you’ll have to upgrade to the pro version if you want to email invoices or sync with the software (sold separately).
2. Best Comprehensive Solution: QuickBooks Connect
   If you use a PC, and your business has more complex bookkeeping needs (like payroll or inventory), you might need a software solution with more features. One of the most popular is QuickBooks, which offers a fully integrated iPhone app for free, though you’ll pay a monthly fee for the service after the 30-day trial expires.
3. Best For Getting Payments On The Go: Credit Card Terminal
   Turn your iPhone into a cash register with this app, which swipes credit card payments. You’ll get the card swipe reader for free, but you’ll pay a monthly service fee on top of transaction fees. It’s essential for people in sales who frequently travel, but anyone with merchant status can use it to process credit cards on the go instead of waiting to send an invoice.

Read this article in PDF form here.