How Often Should I Invoice My Clients?
While there is no hard and fast rule about when to invoice clients, every business needs to have a well-structured invoicing policy to prevent confusion or disputes. The trick is to consider each project and client based on a set of factors such as the contract, client choices, invoicing routine, the size of the project, and the trust factor.
1. What Does The Contract Say?
Do you know an invoice on its own is not a legally binding document? It becomes legitimate only when both the transaction is complete plus both parties agree to the terms and conditions. Hence, when you include the frequency of payments within the contract, the client becomes aware of the invoicing routine automatically. This also gives you the right to enforce the said frequency sans any issues.
Make sure to include the following two items in the contract to avoid confusion later.
- Due Date: Specify the exact date or frequency at which you will invoice the client.
- Clear Terms: Clarify how the payment will change based on the business type and total invoice amount.
Read more about: How To Write An Overdue Invoice Letter
2. Clients’ Timeframes
One of the important factors that affect your decision on when to send the invoice is based on the client you work with. While there are clients who can contour their payment schedule to your unique demands, some clients disburse payments regularly on dates set down by their company.
For example, your client might not be able to pay immediately because they need approval from higher authorities such as the board. Moreover, accounting policies may not be adjustable. In such cases, it is best to have a flexible payment policy or one that’s built around the client’s unique demands.
3. Your Schedule
Given invoicing policies differ from enterprise-to-enterprise, it is important to create your own invoicing routine. Take a look at the two ways to create an accounting schedule below.
Invoicing On A Fixed Date
Wondering when to send a monthly invoice? The biggest advantage of invoicing on a fixed date is that there are no surprises for the client. This saves time and works without disputes unless your work is dynamic.
Invoicing After The Work Is Complete
Sending the invoice after the completion of the work is ideal when charging for services, working with newcomers, or handling those clients who need to make payments immediately. However, this system can backfire by taking time to generate multiple invoices, especially if you have many clients.
4. How Big Is The Project?
Did you know SaaS business providers often bill quarterly or annually? When it comes to bulk work or multiple projects for the same client, it is best to break up the invoice into increments rather than billing for one large payment at the culmination of the project. For example, requesting an upfront amount for a month-long project will help a small business get paid faster.
Here are three standard practices you can use to invoice big-budget clients.
- Ask for 50% before the work and 50% after the work.
- Request one-third of payment at the start, one-third in the middle, and one-third after completion.
- Break the project into milestones.
5. Trust Matters
While it is important to create upfront policies for new clients you don’t trust yet, long-term customers need a thought-out policy that takes their preferences into account. Moreover, it is best to avoid stringent rules and prepayments to incentivize long-term relationships.
For example, consider a client who has paid on time for the last two years. If you suddenly request an upfront deposit, the client might be forced to rethink their relationship. In such a case, you can bill the client at the beginning or end of the project.
6. The Clients’ Habits
It is best to invoice a tardy client with early invoices if you’re aware of their habit of paying late. Moreover, when you bill a late-paying client early, they can’t say they forgot or didn’t receive the invoice. Another alternative for incentivizing clients that are often behind with payments is with late fees.
For example, if you alert a late-paying client that a 5% fee will be assessed for payments received after the due date, they might pay on time. You can also incentivize them to pay early with discounts.
To save the hassle of chasing late payments, you can take the help of accounting software such as Xero to automatically send payment reminders or manage late payment fees.
There isn’t any fixed universal time to invoice your clients. In fact, the right time to invoice your client is dependent on factors such as your contract terms, the preferences of your client, your cash flow needs, and how much you trust the client. The volume of the work and the history of the client should also be considered when deciding the invoicing frequency.