As we rapidly approach the end of the first month of 2005, let's talk about fixing some of those Top 15 Business Mistakes I listed a while back. The first two mistakes on our list are 1) Forgetting to bill the client; and 2) Losing track of unpaid invoices.
Forgetting to Bill the Client
Despite the fact that we're in business to make money, it's amazing how easy it is to forget to actually bill the client for the services you provided. Often it's because consultants are so busy working or trying to get new business that they forget about the current client, or worse yet, one that they have already finished the work for. If it's not right in front of us and especially if it doesn't sound like a cool project, we can get sidetracked. We will tell ourselves, “I'll do that later.” But later never comes. This is especially hazardous when you are juggling multiple clients with multiple projects all at once. You need to develop a consistent habit in regards to billing.
I tend to work on just a couple of projects at once and typically those run over multiple months. It is critical that you establish up-front, before any work is done, what the billing and payment cycle will be. Of course you also need to establish your billing rate. I like to bill on a weekly basis, with payment “due upon receipt of invoice”. In reality that often means a one to two week delay before I receive my money. But I am not in the habit of extending credit to my clients. In many businesses they have credit terms like net30 or others which give the client 30 days to pay, and may have discounts for paying earlier. But I find that my clients are all comfortable with the “due upon receipt” clause. Note that it does not mean that I hand deliver the invoice and stand there waiting for them to write the check. Most businesses are organized such that they pay their bills weekly or semi-monthly and you will get paid in the next cycle.
Because I work predominantly on a Time & Materials basis, I find it easiest (and most accurate) to set aside time on the same day each week to do billing. I used to do it on Sundays, but now I prefer to do it late Friday afternoon. This way I can look back at the past week, review my notes I keep throughout the week about how much time was spent where, and create the invoice. Either way, I have a recurring Task with reminder in Outlook to remind me in case I get busy and forget or in case I'm gone on a long weekend. If I do a project on a Fixed Bid basis, then I create a separate reminder to create the invoice and schedule it for the estimated day of completion. For fixed bid projects I like to deliver the invoice along with the final release of code.
Creating the invoice can be done in many different ways. If you have accounting software like Peachtree or Quickbooks, then your software probably has an option to create an invoice. Or you can just go to the local office supply store and they probably have generic invoice forms. My preference is to create a template in Word which I can use over and over. Mine is pretty simple with my logo in the header, my business address and phone number in the footer, and top-center of the page is the word INVOICE. Then my invoice is formatted sort of like a letter (with date, client name and address, etc.) which makes it easy for creating envelopes and mailing (although, these days, I often am e-mailing the Word document straight to the client). I open with some text stating that this is an invoice for work performed, and include the sentence, “Please remit payment upon receipt of this invoice.” Most of my clients like to see a breakdown of the time I worked, so I have an embedded Excel worksheet in the middle where I log the date, hours, and a description of work done. Then I wrap it up with a thank you for their business, and a reminder of to whom to make the check payable (my company name, not my personal name). Nothing fancy, but it gets the job done.
Losing Track of Unpaid Invoices
You would be surprised how often this one happens, too. I have actually heard people say, as they're shutting down their business, “I don't understand what happened to all the money.” Now, that may be poor money management once they received it, but it is also poor tracking of which invoices are not paid. And you better have a system to deal with the situation where your client says they already paid you. Can you provide a reconciliation to show that they did not?
This one is really easy. Make a trip to the local office supply store and invest a few dollars into your business by buying:
- Box of manila (or other colored) file folders
- Inked rubber stamp that reads “File Copy”
- Inked rubber stamp that reads “Paid” (preferably with a box or line on which you can write the date).
- File Cabinet, file box, or something to hold your files
You can probably purchase all of the above for as little as $50.00. Now, label one folder Unpaid Invoices. Label another folder Paid Invoices. And while we're here, you'll probably want at least one folder per client. Every time that you create an invoice, print an extra copy for yourself and stamp that one with the File Copy stamp. Put that copy of the invoice into the folder marked Unpaid Invoices which you keep in your file cabinet or file box so you always know where to find it when you need to. Whenever you receive payment for an invoice, before you deposit that payment into your bank, take the matching invoice out of the Unpaid Invoice folder, and now stamp it with the Paid stamp and write in the current date. You might also want to write in the company's check number or some other comment about how you were paid. If the invoice is now paid-in-full, put it into the Paid Invoices folder. If the company made only a partial payment, put it back into the Unpaid Invoices folder. In the case of partial payments, I write the amount that was paid next to the date. This will lead to multiple stamps, once for each payment, until the invoice is paid-in-full.
Some people like to put their invoices into the client folders. That's okay for the paid ones, although I prefer to keep my client folders for things like project notes or copies of correspondence. But if you separate your unpaid invoices into the different client folders then you have to go back through all the client folders to find out which invoices have not been paid yet. If you have a client who is really dragging their heels, you could be 8 clients and 17 projects later and easily forget that you never got paid. Ouch! Keep the unpaid invoices all together in the Unpaid Invoices folder so you can easily and quicly see what invoices are outstanding.
The system here is really simple and inexpensive. If you have a fancier system, maybe with software, aging of invoices, alerts, etc., etc. that's great, as long as you consistently use it. Otherwise, set all the bells and whistles aside and use this simple system to make sure you stay in business. It has worked just fine for me for 12 years now, and I still have the original File Copy and Paid stamps. I guess I got my money's worth out of them, don't you think?
posted @ Friday, January 21, 2005 2:42 PM