Did you know that collecting outstanding payments is a major concern for 64.1% of businesses? Chasing after late payments month after month is incredibly frustrating for any company, but even more so for subscription-based businesses sending out regularly recurring invoices.
Making sure that your customers are paying you on time is critical to the success of your business and can help you maintain a positive relationship with your customers, but only if it’s done right.
Invoices are often the main form of communication between you and your customers, so a poorly composed one could be a major factor in untimely payments.
Businesses often do not pay enough attention to the invoicing process, which allows for mistakes to slip through.
You might not realize you are making any mistakes at all, but your customers are likely to take notice. If they’re unhappy with your invoicing practices, they may easily take their business to one of your competitors. Suddenly, you have a higher rate of churn for an issue you don’t even have identified.
Here are 10 invoicing faux pas you should avoid in order to maintain healthy customer relationships.
1. Not explaining the charges in the invoice
Put yourself in your customers’ shoes for a minute and imagine receiving a generic email indicating that you owe X amount of dollars. No other details are provided. This would likely leave you scratching your head a bit and wondering what these charges are for, especially if you are receiving invoices from different companies every month. If you cannot determine what the charges are for, you might even have to take the time and contact customer support to inquire.
It’s crucial for customers to have a full breakdown of all the charges listed on their invoice so they know exactly why they were billed. Any varying information that can cause confusion—be it the difference in charge for renewal, an upgrade or a special offer—should be stated clearly in the invoice. This is especially important when using a usage-based pricing model where the charges may vary from month to month.
Clearly itemizing the charges makes it easier for clients to keep track of what has been delivered and what payments have been made.
Failing to explain the charges in your invoices will likely result in emails or phone calls from customers asking what the charges are for, wasting both their time and yours.
2. Not using friendly, polite language
Invoicing can be pretty impersonal and it’s easy to forget that your customers are real people that are perceptive to the tone of your invoice. Think of when you go to a restaurant. Even if the meal isn’t the greatest, good service and friendly wait staff will almost always improve the experience.
Always make sure that you are just as friendly in the language you use in your invoices as you would be if you were interacting with your customers in person. It may seem like a minor, unnecessary detail, but even just a simple please and thank you can increase your chances of getting paid by 5%.
3. Issuing generic invoices
Your invoices are a reflection of your company, so it's important that you customize them to match your brand and set you apart from your competitors. When you are creating a template for your invoices, always use your company colors and logos so that customers immediately recognize who has sent the invoice.
4. Lack of marketing
If you are looking at invoices simply as a means to get paid, you’re missing out on a great marketing opportunity. While customers might skip past promotional emails or other marketing materials, they are sure to pay close attention when reading their invoices so they know how much money is owed and can check for any mistakes.
Take advantage of the fact that you have their undivided attention. Include discount offers, promotional details, new product launches, and even feedback requests in your invoices.
5. Not setting a payment date
Many businesses will often send out open-invoices to customers without a firm deadline for payment. Instead of an actual date, you might see words like “upon receipt,” and “Net 30.” If a good chunk of your customer base has no idea when their payment is actually due because your invoice uses ambiguous language, you’re setting yourself up for late payments.
To avoid creating confusion for your customers, always specify the exact date that you’d like the payment to arrive. For example, if you issue an invoice on December 1 and would like to be paid within one week, clearly state that the payment is due by December 8.
6. Not following up
Late payments are a major headache for any business, as it can take a huge toll on your cash flow and make a mess of your accounting books. But how do you properly address the situation when it happens and prevent it from re-occurring?A customer may miss a payment for any number of reasons, from misplaced invoices to financial difficulties. A lot of times, though, a customer probably doesn’t realize they missed a payment so it’s crucial that you follow up with them.
When life gets busy, even the most punctual people are bound to slip up. When this happens, it’s important to send out a gracious reminder that payment is due.
As mentioned above, using friendly, polite wording is key in this situation to avoid an adverse reaction from the customer. If they feel they are being treated poorly, they will take their business elsewhere.
Modern recurring billing platforms empower you with automated dunning management features to handle these reminders. All you need to set up is the frequency and the wording of the email series and let the platform automate sending out polite reminders with invoices.
7. Invoicing the wrong person
If you do send out a reminder when a customer is a few days late on their payment, the client might respond by telling you they are not the right person within their organization to be receiving the invoice and will direct you to the correct contact.
By the time that invoice gets into the right hands, a payment will be several days overdue, and you will have wasted time trying to correct the situation. To prevent this mix up from happening in the first place, always confirm and note who your billing contact will be at the very beginning of the customer relationship.
At other times, you might not get so lucky and may send an invoice to the wrong client and organization altogether. Always double check that the email address you are sending an invoice to matches the customer that should be receiving it so that it doesn’t end up in the wrong inbox.
Again, a robust subscription billing platform will improve efficiency while eliminating such errors. You can also easily update contact information if that recipient changes.
8. Leaving out incentives for early payment or penalties for late payment
While chasing late payments is an effective way to ensure you get paid, it’s also costly, frustrating and a waste of your time. To avoid late payments from happening in the first place, try using positive reinforcement to help push your late-paying customers in the right direction.
Rather than focusing on penalizing customers when payments are late, incent your clients to pay you on time or even early by rewarding good customer behavior. Whether it’s slashing some amount off their bill or giving customers a credit or future discount, offering a valuable incentive can help ensure timely payments.
Also, make sure you let your customers know about these incentives ahead of time and always include reminders in your invoices to ensure that this tactic is effective.
That being said, this method is not 100% foolproof. Sometimes you have to resort to penalizing customers to make sure that these late payments don’t become a habit. It might not always prevent late payments, but if you are firm and consistent when it comes to enforcing a penalty, a late or missed payment is less likely to occur a second time.
9. Careless errors
Nothing looks more unprofessional than an invoice filled with errors either big or small. Whether it’s a mistake in the charges, a misspelled name, or an incorrect invoice number, invoice errors of any kind reduce your authority and can undermine the level of trust that your customers have in your business.
Mistakes happen, but that doesn’t mean that they should. Avoid any mistakes by always taking extra time to proofread your invoices before sending them, or switch to an automated billing system to protect brand credibility.
10. Manual billing
As a subscription business, billing is one of the most important activities you have to manage. But as you scale your business, continuing to use a manual recurring billing process will only create more challenges and start costing you money. Those spreadsheets can get very complicated to manage as your customer base grows. Inefficient billing processes will prevent you from growing your business.
With a large volume of regular transactions coming through, accurate invoicing, payments and revenue recognition will be nearly impossible to do manually. At this point, you should be seriously considering an automated recurring billing platform.
Automation not only streamlines your invoicing process, but it also eliminates errors resulting from manual billing, improving your customers’ experience with your brand.
When payments are late, it’s easy to point the blame at the customer without a proper investigation. But if you want your business to succeed, it’s crucial that you pinpoint the problem immediately and take steps to prevent late payments from re-occurring. Regardless of where the fault really lies, it’s important to find a solution that will ensure you get paid on time and keep your customers happy.