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Basic Invoicing
7:36Once you are done with the project, you need to get paid! Managing your books and keeping an eye on your cash flow is essential to your survival. In this video, we walk through the basics of invoicing and how to use accounting to benefit your business.
[Pasan Premaratne] Once you're done with a project, it's time to get paid.
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At this stage in your business things are still pretty small.
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You're going to have a bit of money in the bank, you know all of your expenses off the top of your head,
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and you know who owes you money.
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But as you grow it's going to get difficult to keep track of these things.
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Accounting, or bookkeeping, is a necessary skill set that, like all other admin tasks, will really help you grow your business.
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The earlier you implement an accounting system, the easier the entire process will be for you. But where do you start?
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The first thing you need is a system to bill your clients.
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This doesn't have to be anything complicated, and there are lots of great options out there.
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LessAccounting, FreshBooks, and Xero are some of the most popular ones for freelancers.
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You may have heard of some of the bigger packages like QuickBooks.
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Quickbooks is a great software. But unfortunately for someone just starting out, it's a little bit too much.
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There's a little bit of a learning curve. And because of this, someone who is just starting a freelance business can get frustrated quickly.
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This makes them hate all bookkeeping tasks, and it falls by the wayside.
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To show you how simple and painless accounting can be, we're going to pick a software and walk you through the process.
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When you pick your accounting software there's a few things you want to keep an eye out for.
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First, it should be really simple to use. If the software frustrates you, you will feel like managing your books is a ridiculous chore.
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Unfortunately keeping an eye on your money is crucial to running your business, so it's something you're going to have to do.
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Make sure your software is easy for you to use.
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Second, you should be able to create invoices extremely easily and be able to send clients the invoice without any hassle.
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Finally, you should be able to track all of your expenses with ease.
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Expense tracking is very important, and we'll get to why later.
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Those are the main features.
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There are other things that are nice to have, like the ability to brand and personalize your invoices,
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but they won't hold you back in any way.
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For this video we're going to use FreshBooks as our example. It has all the features that we need, and you can try it for free.
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So once you have a system in place, the second important thing you need is to figure out who owes you money.
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We need to get paid for the work we do, let's write up our first invoice to a client.
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The guys who run FreshBooks used to run a design agency and as a result, the software is built with freelancers in mind.
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Let's go over some of the important things here.
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Date of Issue—capturing the date of issue is quite important because it allows you to track who owes you money.
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You need this data to figure out if your clients haven't paid you on time and if you should be imposing fines or late payment fees.
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Taxes—if you're going to be collecting taxes from your client, this is where you would indicate it.
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We're not going to be collecting any taxes so we'll leave this area blank for now.
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Taxes are a complicated issue, varying by country and state, and this is the kind of stuff that's best left to a professional.
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Then there's Terms. On our contracts, which we're going to tackle in a bit, we're going to include some information on payment terms.
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This section of our invoice is a great place to remind them what the payment terms are
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and how many days they have to pay for services rendered.
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Let's take a second to talk about terms. Your payment terms are quite important and can really make or break your business.
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FreshBooks ran a study on payment terms, and the most common term in the invoices sent out through their system was net 30.
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That means 30 days after the invoice has been issued.
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This seems to be an implied standard in many industries, but it doesn't mean that you should be implementing the same.
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Do what's right for your financial situation.
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If you give the client 30 days to make a payment, that means if they pay you on time you're talking about getting paid a month later
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for any work that you do.
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If they make late payments, it can be as ridiculous as being paid 2 or more months after you have worked on the actual project.
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This is terrible for your cash flow. It's already hard for a freelancer to be in a stable income.
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Why make it even harder by allowing payment dates far out in the future?
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If you want your payment within a week, that's what you should ask for.
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If you think about it, everyone wants to hang on to their money.
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If I had an invoice that said I had a payment due in 21 days, I would wait until the 21st date to pay you. Why do otherwise?
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No one likes paying bills. So the longer you give your clients to pay you, the longer you will have to wait.
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Very few clients will be nice and pay you early.
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That being said, one of the other data points from FreshBook's study was that certain terms do induce clients to pay faster.
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Saying thank you in your invoice increases your chance of getting paid, as well as avoiding technical jargon.
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Now while the data can be interpreted in many ways, the moral of the story is be polite, be simple, and be clear.
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Go with, "Thank you; we really appreciate your business. Please send payment within 7 days of receiving this invoice."
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Rather than, "Payment terms: net 30."
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Be smart about collecting payment. Always remind clients who are late, enforce guidelines, and keep tabs.
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Luckily FreshBooks has a few features that can help us do this. Notice this column here that says "Status."
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Well under that status it says "sent." That means that we sent our client the invoice but they haven't viewed in yet.
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Once they view it, the status changes to "viewed."
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This way you know whether your client is telling you the truth when they say they didn't get your invoice.
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When your client pays off the invoice, you can log that payment in FreshBooks.
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If the client had paid off part of the project costs in an earlier payment, then you can apply this credit towards the invoice total.
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FreshBooks allows you to do this in different ways.
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As you use FreshBooks more, or any accounting software for that matter,
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it will start to give you some great data to understand your business.
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You should poke around all this information to see if you can do things better and improve your business.
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Now let's assume we have a few projects under our belt with a couple clients.
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Invoices have been issued, and we've received payment on some but not on others.
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Once you start collecting all this data you will be able to do a better job with point #2 of why accounting is important,
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and that's tracking who owes us money.
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As you can see, FreshBooks shows you a quick overview of who owes you money.
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Of the $3,000 some dollars you have outstanding, $250 of that is a month late.
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But most of it is almost 3 months late.
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Now this is just an example, of course, but you can see how easy it is to keep track of your money using such software.
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Know which clients are late and by how much so that you can evaluate what action to take.
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You can drill down further by clicking down on the overdue amount to see which specific invoice was unpaid.
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The software can also show you how often your client pays so that if you were to undertake a new project with them,
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you have a better understanding of how to work with them.
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Clicking on a client here shows that they usually take a certain number of days to pay us.
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Since this number is clearly above our payment terms, it shows that we're either not clear enough with our payment terms,
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or we're not doing a good enough job of enforcing them.
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So there you go. Simple but effective ways to invoice your client.
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Now I used the free trial of FreshBooks to show you around but once you have a paid account,
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you can customize all the invoices to reflect your branding.
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Now this isn't all there is to accounting, but don't worry. We'll tackle the problems as they come along.
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