Factoring company

Solid invoicing practices are the lifeblood of any business. The expectations you set forth and the language you use on your invoices determine if, and how fast, your invoices get paid. If you’ll be billing clients for work completed in 2019, get familiar with the terminology outlined in this blog.

1) Terms of Sale (TOS)

Few things have as much bearing on your cash flow as the terms of sale. This is something you should put considerable thought into and have outlined at many touchpoints with your customers. For example, it’s a good idea to have them on your website, if you have one, and you’ll want to place your terms on invoices and estimates, too. This makes sure customers understand what’s expected of them, so you’re compensated the way you expect to be. As you create yours, it may be helpful to consult with a lawyer or, at the very least, jot down a list of all the possible misunderstandings you can imagine a customer having. Then, address each in your terms of sale. A few things to cover include:

  • A clear definition of what service you’re rendering or what products you’re providing.
  • Timelines for delivery.
  • When and how you expect payment.
  • Who is responsible for taxes or duty fees.
  • Any promises, warranties, or guarantees you’re making.
  • How disputes will be resolved if any arise.
  • What will happen if either party doesn’t follow through.

2) Estimate or Quote

Quotes and estimates are beneficial because they help outline expectations before any work begins. While they are not a guarantee of the exact amount a customer will be billed in the end, your customers should feel confident that your estimates are close to the final costs. Again, you’ll want to put your terms on any estimates you give out, so that your customers know exactly what to expect and any potential misunderstandings are cleared up before they can become problems. A well-written estimate makes customers more comfortable and ensures you are paid promptly.

3) Payment in Advance (PIA)

Collecting some form of payment in advance can help you cover expenses associated with completing a job or providing a product. Creating PIA requirements is a good way to increase cash flow, but only if it’s appropriate for your industry.  Depending on what type of business you’re in, it may be common for customers to pay 10-50 percent of the total estimate in advance.

4) Recurring Invoice

If you provide regular/ recurring services for your customers, you can leverage recurring invoices. For example, if you’re a local trucker, and you haul a load of goods for the same company every Monday, or you perform landscaping services monthly for a client, you can automate your invoicing process and send out a bill immediately after the service is complete, use a PIA strategy, or have the system generate an invoice at the end of each billing cycle. Recurring invoices make it easier to predict what your cash flow will look like and cut back on time spent creating invoices.

5) Payment on Receipt

When it is not standard for your industry to collect payments in advance, requiring payment immediately upon receipt of the invoice is the best way to keep cash flowing into the business. That being said, you’ll also need to ensure your customers know this is your policy, so they have the cash on hand to pay you when services are rendered or goods are delivered, and you’ll want to pair this with a policy that creates some form of consequence for those who don’t pay right away.

6) Line of Credit Pay

If you aren’t requiring payment in advance or payment upon receipt, you’re extending a line of credit to your customers. This may not be an issue if you can spare the cash, and you’re “loaning” the money to a credit-worthy source. In fact, most businesses do just this without even realizing they’ve offered their clients an interest-free line of credit. Many businesses give their customers 30 days to pay, but some offer 60 and 90-day payment terms or longer. Be wary of these practices, as they slow your cash flow and can result in less money coming in overall.

7) Net 30

The concept of net 30 is fairly straightforward: it means the debtor has 30 days to pay the invoice. Any number can be in place of 30. For example, if you give your customers two weeks to pay, your terms should read “net 14.”

8) 2% 10 Net 30 or 2/10 Net 30

Additional terms before the net number typically reference a discount being offered for early payment. The first number is the percent discount being offered and the second number is the number of days the debtor has to pay in order to receive the discount. In other words, 2% 10 Net 30 and 2/10 Net 30 mean the same thing. If the invoice is paid within ten days, a two percent discount will be applied. Offering discounts is a great way to encourage fast payments, and thus increase cash flow. However, because many people are unfamiliar with these terms as they’re traditionally written out on invoices, you may get more buy-in from customers if you spell it out for them in clearer terms.

9) Interest Invoice

Just as offering discounts for prepayment will help encourage early payments, having penalties for late payments will ensure paying your bill is a priority for clients, too. Again, it’s imperative that your clients know in advance that they will be penalized for not paying you promptly; the goal is not to punish them, but to guide them into paying you quickly, so your cash flow doesn’t suffer. When someone’s deadline is approaching, you may even want to give them one last nudge to see if they’ll make the payment before being assessed a fee. This is one of the many reasons having a digital automated invoicing and payment system is critical. However, when a customer doesn’t pay, he or she will need a new invoice reflecting the initial charges and any interest or penalty fees accrued.

10) Invoice Factoring

Invoice factoring is a method that allows you to sell your unpaid invoices to a third-party who then collects payments from your clients. To be clear, this is not a debt collection process, but rather, an invoicing system that makes life easier on you and your clients. Keeping track of all the various invoicing terminology, setting terms that encourage prompt payments, and following up on invoices can be incredibly time-consuming. Plus, if it’s not handled well, your cash flow suffers and business operations can grind to a halt. Factoring companies give you immediate payment and take care of some of the biggest invoicing headaches, so they can be a valuable resource if you’re struggling with any aspect of billing your customers.

Find Out if Factoring is Right for You

Interstate Capital specializes in invoice factoring. We help companies solve their invoicing and cash flow woes every day, and can even get payments to our clients within 24 hours. If you think invoice factoring is right for you, get an instant rate quote from Interstate Capital.