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Everything You Need to Know About Small Business Invoicing

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Small businesses like yours make up a hefty 44% of the overall economy, and hundreds of thousands are added every year. Right now, your business plays a role in the supply chain, but you’re limited to what your working capital allows you to do. If you could expand to invoicing, you’d be able to target larger suppliers and customers. 

Invoicing opens you up to working with government and corporate contracts. The downfall is that these major orders require a lot of upfront cash flow, and you may not see payment for months.

If you can implement an invoicing system strategically, you might see extreme growth in your company. Check out this information about small business invoicing to see if it may be right for you.

1. Extending Credit Attracts Customers

Invoicing your customers is another way to say you’re extending them credit. When a business can order what they need from you without paying for it first, they’re more likely to choose you to work with.

It may have nothing to do with whether they have the money or not and everything to do with the hassle of waiting for the funds to be approved. Plus, if someone doesn’t have to think about what they do or don’t have in their bank account at the time, they’re likely to spend more.

Invoicing gives you an edge over your competitors and increases customer loyalty. Buyers will come back to you because you give them credit and have shown to provide reliable goods and services.

The downside, of course, is that you run the risk of not getting paid for the order. To mitigate this possible loss, consider customizing credit limits, as a bank or credit card lender would do. Until they’ve proven to be creditworthy, keep those limits low.

2. Your CRM Can Make Invoicing Simple

Getting into invoicing for the first time doesn’t have to be complicated. Your current customer relationship management (CRM) system may already have the tools you need to simplify the process.

With a good CRM, you design the invoice template, insert your payment terms, and update the customer’s data as it changes. The system sends out invoices on schedule and follows up with outstanding bills.

Many CRMs integrate with accounting software like Quickbooks. Once you learn how to use yours optimally and set up a workflow process, you’ll find that invoicing is simple.

3. You’re in Control of the Payment Terms

An offer to extend credit to a customer is based on your terms, not theirs. If you try something out and it doesn’t work, you’re entitled to change your mind and set new terms. It’s your business.

You choose how long your invoice terms are and when the bill is due. You decide if there are late fees that you’ll tack on and whether you report unpaid invoices to a collections agency or not.

It’s up to you what type of payments you accept, such as checks, credit cards, ACH payments, and Venmo or PayPal. Since businesses are often penalized for accepting credit cards or cashing out through apps, you may be able to roll that cost over to your customers.

You Get to Decide the Terms, But You Have to Let the Customer Know

All of these terms must be clarified ahead of time, though. When a customer places an order on credit, they should know when the invoice will be sent out, when it’s due, and if there will be late penalties. Make the types of payment you accept clear.

If you decide to invoice on the 15th and send out reminders the day before the invoice is due, that’s your choice. If it’s not working, and you want to switch to the 18th, that’s up to you, too.

The only hard and fast “rule” is that you should let your customers know in advance. With a month or two notice that you’ll be changing your terms, they can adjust their budget as necessary.

4. Cash Crunch? You Can Sell Your Invoices

Every business finds itself in need of extra working capital at some point. Maybe you’re in a lull and the busy season is around the corner, and you just need enough to get through until then. Or your essential vendor is having a major clearance sale, and you want to stock up.

Whether you’re growing your business or trying to stay afloat, you need cash fast. A working capital loan, as discussed in this article by Now, would have been your go-to solution before. As an invoicing business, you have other options.

Invoice Financing Versus Factoring

Rather than taking out a loan and adding an extra monthly payment, you can choose a few invoices, find a factoring company, and sell them. 

When you start looking into invoice financing, you’ll see two very similar possibilities: invoice financing and invoice factoring. They look the same, but there’s a vital distinction.

Invoice factoring companies take the whole of your outstanding accounts receivables and buy them at a discount. Invoice financing lets you pick and choose which invoices you want to sell, staying in charge of your business.

Either way, you can avoid taking out loans, which become a long-term solution to a short-term problem. As an invoicing business, finding a third-party factoring company to work with when you need cash can be beneficial.

5. You Can Sign Up to Work With the Government

After your invoicing system is solidly in place and you’ve worked the kinks out, consider signing up to place bids as a federal contractor. 

The United States government is not only the largest customer in the world, but it is legally required to buy from small businesses like yours. The catch is that you have to be approved as a contractor to work on a federal level.

There are two categories of contractors—prime contractors and subcontractors. 

As a prime contractor, you’d bid on contracts offered by government agencies. As a subcontractor, you would work alongside the prime contractor, providing a service or good that they need to complete their contract.

To get into this type of work, ensure your entity legally qualifies as a small business based on the SBA designation. Then, register with the government as a contractor and start looking for contracts you can bid on.

Conclusion

Small businesses that invoice have a leg up over their competitors. However, invoicing comes with its own set of advantages and disadvantages. 

If you want to grow your business, start by implementing an invoice system and perfecting it. From there, you’ll be able to offer your products and services to everyone, including the government.

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