Posts Tagged ‘invoicing’

When it comes to invoicing, there is a golden rule of business which says “Invoice as soon as possible”.  This clearly gets the bill in front of the customer as soon as possible, which in turn helps cash flow as we get the money into our bank accounts as soon as possible.   But, sometimes later payments or earlier payments are more prudent.

The three possibilities for invoicing are as follows:

Up Front Invoicing
This option is preferable for both large scale projects, and when we are dealing with a new client.   At the start of any project, agreeing as part of the terms of business, an initial up-front payment (say a 50% deposit) means we have money in the bank before work is started.  This reduces the risk that we get half way through the project and the customer cancels, goes bust or just does not pay.   It also has advantages for very big projects which may take several months in that we don’t have months of no cash coming in, which can lead to all kinds of famine/cash flow problems.   Clearly, sometimes asking for money up front can be difficult, but this option does reduce a lot of the payment risks for you.

At End of Work Invoicing
To be honest, this is my general method of invoicing – raising a full and complete invoice once the project has been completed, and including all the quoted work, expenses and other costs.  I normally select this method of invoicing because I am not so good at asking for the money upfront (a case of do as say, not as I do ), plus I balance this off by the fact I have a reasonable amount of cash in my company account, plus the customers I have been lucky to land have been bigger name companies.

Delayed Invoicing
The third and most surprising option available is to delay the invoicing of the customer.  Even once the project is complete and handed over, there may be some situations where you don’t produce an invoice for a few days or even a few weeks.  This option is really only advisable for really trusted customers, but it can have a cash flow benefit close to period or year ends.   When an invoice is for a large amount, delaying the creation of the invoice for a few weeks can push the payment into the next VAT quarter or next year end, which then delays when the VAT has to be repaid, or when the corporation tax appears on the profits.    I am currently sitting of 3 or 4 large invoices which I will be sending out at the end of January, once I have completed my year end accounts – thus delaying the payment of a few hundred pounds of corporation tax by 12 months or so.

Whenever I read any business book, one of the things that will always be mentioned (normally in bold, underlined and sometimes with its own chapter) is that cashflow is the life and death of any business.  It doesn’t matter if you are a contractor, a freelancer, a small business owner or a multi-national, if you don’t have a revenue stream from happy customers ready to pay their invoices, sooner or later your bank balance will dwindle away and your business will fail.

So it’s critical that you know in advance when your business bank account is looking good, and when it needs attention – either in the form of a reduction in costs, or raising of more invoices.

I am a great fan of the FreeAgent accounts, invoicing and payroll system – it does almost everything I need to deal with business money matters quickly and easily from quotes, to invoices, to payments through to taxes – both company and personal.  However, it does not do cashflow forecasting (Freeagent prefers to concentrate on getting the accounting right).   So it’s good to see that an independent company has created a separate, but integrated web application called Float which deals with the missing cash flow forecasts.

Float links with Freeagent accounts and pulls in the account transactions, scheduled bills and invoices generated.  Once in Float, transactions can be set to one-offs or reoccurring (monthly, quarterly, yearly, etc).  Float pulls in both income and expenditure transactions, and can match new transactions against the scheduled events.  Using the current state of the Freeagent accounts, and the predefined reoccurring or scheduled transactions, Float will then produce some nice cash flow forecast models via charts, monthly tables and yearly projections – perfect for spotting time periods which need attention or which period of time is best to make that large asset purchase.

Float is currently in beta test mode, with development still ongoing, but they are accepting testers and beta users.   If you are a Freeagent user (and I will always recommend it to any small business), Float looks like it is going to be the perfect cashflow control and analysis tool to bolt on to the accounts service.

As a business owner that provides a service, whether it’s a contractor, freelancer or even a washing machine repairer, one of crucial things to get right is to work out how to charge for your time.

There will of course be projects where you can just provide a figure and no detail – and they are great.  But for most projects, the customer will want some form of breakdown of the cost – and this means revealing your rate and how long it will take.

There will also be times when people want changes, support, meetings etc, and this will be ad-hoc.  So how do you bill for your time?

There is a major danger in providing an hourly rate.

Lets say I am your customer, I call you and ask for a meeting, and lets say you want to charge for a meeting.  You clearly are not going to charge a full day for a short meeting – so you might be tempted to provide an hourly figure.   I would love this as a customer – I can make the meeting take an hour, and that’s the figure I would expect to pay.

But as a contractor – what happens with all the other hours for the meeting.  The travel time, the meeting prep time, the follow up time – how do you charge for this?   What happens if the meeting takes 1 hour 10 minutes, who pays for the 10 minutes?

Charging per hour is asking for trouble.  Either you loose time which you can’t charge for, or you end up looking like the inflexible worker, who charges an hour for the extra 10 minutes.

As a solution, I desperately try and charge a day rate rather than an hourly rate.  However, to add some degree of flexibility, I agree to charge to the quarter day rounded up.   If you want me for a meeting, that’s fine, but that 1hour 10 minute meeting will cost you a quarter day of my time, more if I can’t get there and back in the quarter day slot.

The other advantage is that if you can do two quick things in the same quarter day for different customers, you get to charge twice for the same time period.  Customers will be happy with this approach, as it will suggest to them the quarter day method is to simplify your administration processes.

Note, if you are looking for a Freeagent referral code to save 10% on the freeagent sign-on costs, there is a code at the end of this post.

When it comes to web sites, products and services, there are many different ways of driving traffic and customers to your doorstep, be it virtual or real.  The vast majority will take time, money and an awful lot of effort with differing degrees of success.   As a business supplier, one of the cheapest methods is the referral – customers telling other customers to use your product and service because of how good it is.

There are 3 different ways of getting referrals:

Customer direct referrals – This is where customer A tells customer B how good your product/service is, you have no involvement, and the first you know about it is an email, phone call or visit from customer B.  Great – more business, but how many times has it happened for you?

Customer requested referrals – For this, you need to go cap in hand to customer A (possibly at the end of  a project) and ask if they know of any other companies who could benefit from the same product or service.  If they provide details (and even if they call company B on your behalf) you are only one step ahead of a cold call.

Customer incentive referrals – This type of referral is almost the same as the customer direct referral, with the exception that there is an incentive for customer A to contact customer B.

Let’s take two real world examples of these referrals.

LoveFilm – If you are a member of lovefilm, the online film rental company, as well as sending you your requested DVD or BluRay movies,  every so often you will get cards from them giving new customers a months free subscription for you to pass on to friends to encourage them to join.  This is all fine and good, but the big question is – what do I as an existing customer get out of it?  The answer is nothing.

FreeAgent – Now if you are a user and subscriber of the Freeagent small business online accounting solution, you have a page on your accounts screen for referrals.  Freeagent encourages you to pass on the good word – if somebody takes your advice and signs up to Freeagent, then they as a new user get a 10% discount.  But the difference here is that Freeagent also gives you, the existing customer the same 10% discount.

So in the two examples above, Lovefilm gives me nothing for proving their link above, whereas Freeagent gives me 10% off all my fees in the future if somebody clicks it and signs up.  But it also gives you the same 10% if you sign up.  In the Freeagent system – everybody wins.  My link gives me 10% off my existing account, you get 10% off and freeagent gets a new customer with zero marketing cost.   Everybody wins.

It’s viral marketing at its very best, but in this case you are not forced to watch a video of a computer generated frog, a man painted orange slapping people, or a dog roller-skating.

So that leaves two questions….

1)      Where in your business can you use the Freeagent model to have existing customers pass on your details for a future reward in the form of discount, gift, free days, hours, etc?

2)      If I wasn’t getting the 10% discount from the Freeagent link, would I still recommend it?  The answer is a big YES, even without the 10% referral, it’s the best thing for small business since sliced bread

The referral code is included in the above links.  But if you are looking for direct entry of a Freeagent referal code, use 34o5sqzm

If I could recommend any one product to anybody running their own small company, above all others it would be FreeAgent.   Freeagent is a web based small business accounting package.   But its more than that – it’s an example of how all things should be done.

I first came across Freeagent about 8 months ago when I had a fall out with my small business accountant that I used to my companies accounts.  Without going into too much detail, let’s just say we had a disagreement on some aspects of how the accounts were being done, and I was becoming more and more unhappy at the rising costs of doing my accounts.

When I started looking around for alternative accountants, I was originally looking at another normal accountant and actually met with 2 or 3 to talk rates and work I needed them to do.   But a few people in the same industry as me started to direct me towards a number of online accounts packages including clearbooks and sage.  But the one that stood out for me was freeagent – and I was impressed from the start.

Freeagent provides everything a small company owner could ask for – estimates, invoices, purchasing, bill payments, automatic chasing of late payments, full accounts, payroll, taxes, vat calculations and year end calculations, plus full online book keeping.  But the best bit is, you don’t need to know anything about accounts to use it – its just works, straight out of the box.  If you need advice or tips (and it’s really not difficult – if I can understand it anybody can), there is a very good support group.

Freeagent does all the things my accountant did, for a fraction of the price. For me, the best bit is that it provides day-by-day view ability of my (small) company’s state of play, from profitability, to outstanding invoices, pending quotes, tax position etc.   With my accountant doing my accounts, I only got this picture at the end of every quarter or at the end of the year.

Some of the many features of FreeAgent includes:

* Quotation of Estimates and quotations (from scratch or using a price list)
* Project setup and time tracking
* Expenses (both tracking) and payment
* Converting quotes into invoices (or new invoices from scratch) , including project time and expenses
* Print the invoices, convert to PDF or automatically email them to the customer
* Chase late payments
* Bank account transaction tracking, including download from most banks
* Tax calculations as you go, including PAYE, corporation and VAT
* Automatic submission of VAT to revenue and customs
* Payroll processing and reporting, including PAYE and dividends
* Tracking of multiple accounts, including paypal
* Full accounting reports; balance sheet, P&L, payroll, expenses, transactions, etc

Maybe the best thing about FreeAgent is you dont need to spend a lot of time on it, or know anything about accounting – it steps you through and does everything for you.  It is so simple. Its saves me time, it has saved me lots and lots of money, it provides me a clear picture of the state of my company, and its online so other people can access the information at the same time.   It’s already as cheap as chips, but if you use this link, you get a further 10% of the fees.  Plus you get to try it free for 30 days, so you have nothing to loose and everything to gain.

If you run any sort of small business, take a look – you really won’t regret it!