Top invoice errors and how to avoid them

Getting paid on time for goods sold or services rendered is critical for small businesses to manage their finances effectively. After all, late payments can disrupt cash flow and even damage relationships with clients and suppliers.

While customers can sometimes be the guilty party when it comes to late payments, businesses can often improve the situation by avoiding common invoicing mistakes that hinder prompt payment. Let’s examine a few of these invoice errors and top tips and tricks that can help businesses get paid on time.

Common invoicing mistakes

For many small business owners, invoicing can be a burdensome, repetitive task. Here are some of the most common invoice management pitfalls:

• Late invoicing. This is a common invoicing mistake, especially for busy entrepreneurs. For example, a freelancer might complete a project but get caught up in new work and forget to invoice the client for several weeks, delaying payment.

• Incomplete or incorrect invoices. An incomplete invoice might be missing essential information like a due date or contact information, while an inaccurate invoice could have an incorrect amount, a mismatched item description, or even the wrong client name.

• Ignoring payment terms and policies. Neglecting to establish and communicate these terms can lead to confusion and delays. For instance, if a business doesn't specify late payment fees, they might have difficulty collecting them if a client misses the due date.

• Not following up on unpaid invoices. If a small business owner sends an invoice but doesn’t notice it's overdue until weeks later, collecting the payment typically becomes harder. This is a common recurring billing invoicing mistake where automated reminders are crucial.

• Not utilizing technology and tools for efficient invoicing. Sticking to manual methods, like handwritten invoices and spreadsheets, can be time-consuming and lead to errors.

Late invoicing

The number one tip for any business that wants to be paid on time is to avoid late invoicing. Some customers will try to put payment off for as long as possible, so a great first step is committing to timely invoicing practices.

Fortunately, this is where technology can give a real boost to businesses of all sizes. E-invoicing can relieve a lot of the pressure by creating an automated system that promptly generates invoices with little input. These digital solutions can also track, transmit, and archive invoices.

Incomplete or incorrect invoices

Incomplete or incorrect billing is often a common reason behind delayed payments. Sending correct invoices free of errors is a key part of ensuring customers pay promptly. While every invoice will be unique, there are nonetheless several standard pieces of information that should be included, such as:

• Company name and address. This identifies your business for the client and ensures the payment is sent to the correct place. A missing or wrong address could lead to an invoice discrepancy and delay payment.

• Client or customer information. An incorrect invoice with the wrong client name or address could lead to it being ignored or discarded.

• Invoice number and date. A unique invoice number helps with tracking and record-keeping, while the invoice date establishes the timeline for payment. Missing this information can cause invoice issues.

• Product or service provided. A clear and detailed description of the goods or services rendered helps the client understand what they are being billed for. Vague or inaccurate descriptions can lead to invoice discrepancies and disputes.

• Invoice payment terms. Clearly stated payment terms, including the due date, accepted payment methods, and any late payment fees, help manage client expectations and ensure timely payments.

• Additional invoice terms and conditions. This might include details about warranties, return policies, or other relevant terms agreed upon with the client. Without these, you could experience misunderstandings or even potential legal issues down the line.

Ignoring payment terms and policies

Businesses should set out specific payment terms that dictate how long after invoicing they expect to be paid. For instance, ‘Net 30’ means that clients have a 30-day period in which to pay the balance on their invoice. Another example is ‘15 MFI,’ which means that payment is due on the 15th of the month after the invoicing date.

Many new business owners find it awkward to discuss money, but nobody should expect to receive services for free. Businesses should let their customers know that they have clear payment expectations at the beginning of every business relationship — being upfront about payment policies is just good business.

Not following up on unpaid invoices

Effective invoice follow-up is an essential part of cash flow management. Businesses can decide not to work with late-paying clients again, but that doesn’t help them receive payment for services already rendered. This also risks losing potentially good customers when other actions can prompt quicker payments and maintain productive relationships.

Though it might be tempting, never follow up on an unpaid invoice until the customer or client is already late. They have not yet broken the agreement, and harrying customers can negatively affect relationships and compromise return business.

Technology and tools to improve the invoicing process

Many businesses still rely on Excel and other basic software to create invoices. However, digital invoicing solutions have evolved rapidly over the last few years, significantly streamlining the invoicing process.

There is a vast range of different tools available that make it easier than ever for businesses to generate, send out, track, and archive their invoices, including:

• Invoicing software. Makes writing invoices easy by automating invoice generation, tracking payments, and sending reminders.

• Automated invoicing. Takes invoicing software a step further by automatically generating and sending invoices based on predefined schedules or triggers.

• Cloud-based invoicing. Offers the convenience and accessibility of managing invoices from anywhere with an internet connection. Data is stored securely in the cloud, allowing for real-time collaboration and access to invoice information anytime, anywhere.

Invoicing software

Invoicing software almost completely removes the human errors that can often lead to delayed payments. It ensures that the required information is included — all while simplifying tracking, removing the risk of duplicate data entry, and optimizing the use of resources.

There are plenty of invoicing software options available with different features and pricing to suit your business needs, the types of invoices you require, and your invoicing volume. Some popular ones include PayPal, Xero, and QuickBooks.

Automated invoicing

Switching to an automated invoicing system can simplify the process for both your business and your customers. After creating a template, simply enter the invoice specifics and details of who it should be sent to. The invoice automation software will then deliver the invoice and even add a ‘Pay Now’ option, so the recipient can quickly and securely pay the invoice.

Using this kind of streamlined invoicing system can lead to prompt payments and make it easier for customers to pay.

Cloud-based and e-invoicing

Since the pandemic, remote and hybrid work has become much more common. This shift has accelerated the adoption of cloud-based solutions and e-invoicing.

Cloud-based invoicing solutions provide all the features of traditional software but with added benefits like accessibility, affordability, and seamless integration. They’re typically available for a subscription fee and can be accessed from anywhere with an internet connection, making them ideal for remote teams and businesses with employees in multiple locations.

E-invoicing, a key component of many cloud-based solutions, takes digital invoicing a step further by automating the entire process. Invoices are generated, sent, and processed electronically, eliminating the need for paper documents and manual data entry. Some key e-invoicing benefits include a reduced risk of errors, speedier payment processing, and improved overall efficiency.

However, e-invoicing is not without its challenges. Common e-invoicing mistakes include:

• Incorrectly formatted invoices. E-invoices must adhere to specific formats to be processed correctly. Errors in formatting can lead to rejection and processing delays.

• Invalid or missing data. Missing or inaccurate information, such as incorrect tax amounts or invalid recipient codes, can cause e-invoices to be rejected.

• Security vulnerabilities. E-invoicing systems must be secure to protect sensitive financial data. Failing to implement proper security measures can expose businesses to data breaches and fraud.

• Ignoring legal and compliance requirements. Different countries have varying regulations for e-invoicing. Lack of compliance can result in penalties and legal issues.

Best practices and how to reduce invoice errors

Invoicing is an unavoidable part of doing business. However, making it a uniform process can ensure it is carried out quicker, reduce mistakes like billing errors, and lead to more timely payments.

Here are some invoicing best practices that help businesses reduce invoice errors and avoid a cash flow crunch:

• Create clear and detailed invoices. Knowing how to check potential errors before posting an invoice is key to minimizing bill errors. Before sending an invoice, use this invoice checklist to ensure all essential elements are included and accurate.

• Communicate professionally. Clear communication throughout the billing process helps build strong client relationships and reduces the risk of invoice disputes.

• Reconcile invoices regularly. Comparing invoices with bank statements helps identify and resolve any discrepancies immediately.

Clear and detailed invoices

Creating clear invoices that are well-structured and include all of the relevant information makes things easier for all parties. Helping customers understand exactly what they owe, when they should pay, and how to send payment will create a more frictionless process and play a key role in nurturing a positive business relationship.

Rather than generating a completely new invoice every time, consider using digital invoicing software to save pre-made templates that can be modified as necessary.

Professional communication to avoid invoice disputes

Client relationships are improved when each party is sure of the terms of their agreement. As such, professional communication is a key factor in any business relationship.

Anything agreed should be put down in writing — in a contract, an invoice, or even through a simple email. These kinds of client interactions and precise billing communication are easy ways for businesses to prevent invoice disputes.

Regular invoice reconciliation

Invoice reconciliation involves comparing bank statements to invoices, ensuring they match with the appropriate book entries. Doing this regularly helps track billing accuracy, making sure that financial records are clean and books are balanced.

Many digital accounting solutions can automatically reconcile invoices, but for small businesses, it can also be done manually. Typically, this is carried out by gathering the relevant invoices, creating a ledger of all payments, and comparing them with bank statements from the same period.