Invoices are the backbone of business; they outline what’s been sold, the amount it’s been sold for, and when a business expects to be paid. Without invoices, cash flow grinds to a halt.
But what happens if an invoice is badly designed, or includes errors? Your business could face delays in payment, your customers could end up confused and unsure what to do, or you could even end up paying an incorrect amount of tax.
To understand how this happens, you first have to understand the common invoicing errors.
Error 1 - Sending the invoice to the wrong place
There are two different ways this can occur, so let’s look at them in turn.
Firstly, this can happen when you’re dealing with larger businesses that contain multiple departments. For example, you could send the invoice to your contact at the business, but they’re unable to do anything with it. You should have sent it to the accounts department instead. Most of the time, your contact will inform you of the mistake and tell you where to send it instead. However, this can cause a delay if it’s not immediately noticed, or if your contact is out of the office.
To avoid this, ensure you are sending all invoices to the correct person, in the correct department.
Secondly, you could send an invoice to the right place, but to the wrong business. Typically, this happens if a business has recently changed its name. If your records have yet to be updated, you could end up sending the invoice to the old name. As the name does not match, the business may refuse to pay.
To avoid this, ensure your records are kept up to date and accurate.
Error 2 - Not explicitly including the item or service
You may think that your invoice is clear and states exactly what the client bought from you. But does the client know your internal terms for your items?
If your invoice states the client bought “25x uni-t in anthracite with 3cm square badge to front”, will your client know they bought 25 unisex t-shirts in dark grey with a 3cm embroidered logo on the front of it?
When your client is unsure about what they’ve bought from you, they may dispute the invoice; it’s then on your shoulders to prove what they bought and that you’re owed the money for it.
Error 3 - Not including the correct amount
While you may have standard prices, what happens if a client is on legacy pricing? Or what about a negotiated discount due to order volume?
Issuing an invoice with the incorrect amount on it isn’t such an easy fix once it’s been issued. You need to supply your client with a Credit Note that cancels out the invoice. Only after that can you re-issue the invoice with the correct amount.
Going through this can delay your business receiving the money owed; therefore, you should always double-check the amount before you send the invoice to the client.
Error 4 - Using the incorrect VAT rate
VAT can be complex, especially if your business doesn’t use the standard rate. For more information about VAT, check out this blog by our sister company Company Wizard - VAT - What is it and how do I register?
Also remember, if you haven’t long registered for VAT, your clients may become confused if you start charging it to them. So it could be best to notify them before you invoice.
If you’re already registered for VAT and need to connect your HMRC account to QuickFile, check out the following - Connecting Your HMRC Account (VAT).
Error 5 - Not including the correct payment information
As your business and the economy change over time, certain payment methods fall in and out of favour. Your invoices should keep up with these changes so that your clients always know how they can pay you.
For example, does your business still accept cheques? Or have you recently stopped accepting cryptocurrency?
If your clients are unsure how to pay you, or if they use an outdated method, this can slow your cash flow. So, to avoid this, clearly state your payment methods on your invoices and keep them updated as your business changes.
Error 6 - Forgetting to include an invoice number
Your invoices should be numbered sequentially, for example, INV-0001. By using these numbers, both you and your clients can easily keep track of issued invoices. Imagine if your client called you one day and asked to have another order of 25 t-shirts made; how would you be able to differentiate the two invoices?
This isn’t just an issue of discussing orders with your clients; for example, what happens if you are audited? Would you be able to explain that a client re-ordered, or would it look as though you’ve simply re-issued an invoice upon request?
How QuickFile can help
Here at QuickFile, we can help your business keep on top of its invoicing needs.
If you need to send an estimate to one contact within a business but send the final invoice to another, we can help by allowing you to save multiple points of contact.
Our invoices also include multiple invoice lines, allowing you to break down exactly what the client has ordered (you can also add notes to the invoice for additional explanations, if required).
And, with automatic sequential invoice numbering, the risk of forgetting to number an invoice is greatly reduced.
For more information and useful tips on how to use QuickFile, check out our YouTube channel, where you can find information on how to set up Reusable Inventory Items, which make invoicing even easier.