- May 12, 2011
The Devil is in The Invoice
- @hoyboy
- CEO / Partner
If you run a creative services business and haven’t seen Mike Monteiro’s F*ck You. Pay Me. talk, take 40 minutes and watch it. In his ever-so-subtle style, Mike provides a real world overview of the red flags that result in you not getting paid for your work. A lot of the talk focuses on the importance of having a sound contract and a lawyer’s ear, both of which are crucial. While Mike’s talk hit on the big points, there are also some smaller details that can a make big difference. For example, how you invoice.
Our First Invoice
We ask for a third of the total project cost up front, and the first payment for any new project is always due upon execution of the contract. If you take this approach, make sure the language outlining this in your contract is crystal clear. It doesn’t mean you will submit your first invoice when the contract is signed and then it’s due in 30 days; the payment is due the moment the signature dries on the paper (yes, with real paper and real ink). Why? Well, if you think about it, you’re putting yourself out on a tremendous limb if you don’t get funding in advance for the early phase of your work together. You’ll be relying on the phases of your other projects to magically align so you’ll have the cash to float the early work on the new project, and that’s dangerous.
Think of it this way: smart invoicing is smart cash management. I prefer to work under the mantra that each project should fund itself, and I try not to ever let one project carry the financial burden for another. Note that this is not a deposit; it’s not refundable at the end of the project. It’s an upfront payment. Some clients may be a bit wary of this, but my advice is to hold firm on your request. If the client has performed their due diligence, including speaking to your references, they should be comfortable with extending you this courtesy. And, as Mike discussed, your contract should have escape clauses for both parties anyway, just in case something goes south.
The Other Invoices
You may have heard these terms before: “net 15,” “net 30,” or “2% 10, net 30.” What does that stuff mean, anyway?
Net 15 means that the payment for your services is due within fifteen days of the service being completed.
Net 30? Same idea, just thirty days.
If you can get a client to agree to a fifteen day payment term, consider yourself a superhero and go grab some surf & turf with your quick money. A fifteen day turnaround is pretty rare in my experience, especially if an organization has a lot of moving parts. Thirty days is more common, and the most reasonable expectation, so that’s what we do. And so you know, it’s thirty calendar days, not thirty business days.
If you have employees, try to time the due dates for your invoices at least five days before a payroll run. This ensures your bank account has the padding it needs before you need to pay your folks.
And what about “2% 10, net 30?” This means you’ll extend the client a two percent discount if the client pays the invoice within ten days. If they don’t take advantage of the two percent discount within ten days, the invoice is still due within thirty days. We’re experimenting with this idea, adjusting both the discount percentage and discount period variables, kind of like A/B usability testing. I’ll report back with my findings on that.
Be a pro. Make it easy.
People are more inclined to pay you if you look like you know what you’re doing. Don’t rely on a canned Quickbooks template for your invoice design. They are as professional-looking as paying people with wallet-sized checks like this. Blinksale, Harvest, and Freshbooks all have snazzier “out-of-the-box” invoice styles. In addition, all three are worth checking out for the business benefits they offer beyond just professional-looking invoices.
A better looking invoice is just one way to make it easy for your clients to pay you. We also send that first invoice when we sign the contract, so the client has it in hand. We automatically provide the tax information they’ll inevitably ask for, like an IRS W-9 form. We list our wire/EFT information on all invoices and contracts for easy reference, and if they prefer to send payments via FedEx, we offer to cover the FedEx expense using our own FedEx account number.
If you have a client that would prefer to pay by credit card, consider accepting them! Collis Ta’eed wrote a great article about taking payments that’s worth checking out. I’m personally intrigued by escrow services like escrow.com. Has anyone reading this ever used one, and would you recommend it?
These are just a few tips from a guy who’s tried many approaches, and are not the only ways to approach this, for sure. What other kinds of incentives do you offer your clients to pay you on time? What billing strategies do you employ to get paid for your hard work? Happy billing!