Basic Invoicing

[Pasan Premaratne] Once you're done with a project, it's time to get paid. 0:00 At this stage in your business things are still pretty small. 0:03 You're going to have a bit of money in the bank, you know all of your expenses off the top of your head, 0:07 and you know who owes you money. 0:12 But as you grow it's going to get difficult to keep track of these things. 0:14 Accounting, or bookkeeping, is a necessary skill set that, like all other admin tasks, will really help you grow your business. 0:18 The earlier you implement an accounting system, the easier the entire process will be for you. But where do you start? 0:26 The first thing you need is a system to bill your clients. 0:34 This doesn't have to be anything complicated, and there are lots of great options out there. 0:38 LessAccounting, FreshBooks, and Xero are some of the most popular ones for freelancers. 0:43 You may have heard of some of the bigger packages like QuickBooks. 0:48 Quickbooks is a great software. But unfortunately for someone just starting out, it's a little bit too much. 0:51 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. 0:57 This makes them hate all bookkeeping tasks, and it falls by the wayside. 1:04 To show you how simple and painless accounting can be, we're going to pick a software and walk you through the process. 1:09 When you pick your accounting software there's a few things you want to keep an eye out for. 1:15 First, it should be really simple to use. If the software frustrates you, you will feel like managing your books is a ridiculous chore. 1:20 Unfortunately keeping an eye on your money is crucial to running your business, so it's something you're going to have to do. 1:28 Make sure your software is easy for you to use. 1:34 Second, you should be able to create invoices extremely easily and be able to send clients the invoice without any hassle. 1:38 Finally, you should be able to track all of your expenses with ease. 1:45 Expense tracking is very important, and we'll get to why later. 1:50 Those are the main features. 1:53 There are other things that are nice to have, like the ability to brand and personalize your invoices, 1:55 but they won't hold you back in any way. 2:00 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. 2:02 So once you have a system in place, the second important thing you need is to figure out who owes you money. 2:10 We need to get paid for the work we do, let's write up our first invoice to a client. 2:15 The guys who run FreshBooks used to run a design agency and as a result, the software is built with freelancers in mind. 2:21 Let's go over some of the important things here. 2:28 Date of Issue—capturing the date of issue is quite important because it allows you to track who owes you money. 2:31 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. 2:38 Taxes—if you're going to be collecting taxes from your client, this is where you would indicate it. 2:45 We're not going to be collecting any taxes so we'll leave this area blank for now. 2:51 Taxes are a complicated issue, varying by country and state, and this is the kind of stuff that's best left to a professional. 2:55 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. 3:02 This section of our invoice is a great place to remind them what the payment terms are 3:09 and how many days they have to pay for services rendered. 3:14 Let's take a second to talk about terms. Your payment terms are quite important and can really make or break your business. 3:18 FreshBooks ran a study on payment terms, and the most common term in the invoices sent out through their system was net 30. 3:25 That means 30 days after the invoice has been issued. 3:32 This seems to be an implied standard in many industries, but it doesn't mean that you should be implementing the same. 3:36 Do what's right for your financial situation. 3:42 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 3:45 for any work that you do. 3:52 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. 3:54 This is terrible for your cash flow. It's already hard for a freelancer to be in a stable income. 4:01 Why make it even harder by allowing payment dates far out in the future? 4:07 If you want your payment within a week, that's what you should ask for. 4:11 If you think about it, everyone wants to hang on to their money. 4:15 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? 4:18 No one likes paying bills. So the longer you give your clients to pay you, the longer you will have to wait. 4:26 Very few clients will be nice and pay you early. 4:32 That being said, one of the other data points from FreshBook's study was that certain terms do induce clients to pay faster. 4:36 Saying thank you in your invoice increases your chance of getting paid, as well as avoiding technical jargon. 4:44 Now while the data can be interpreted in many ways, the moral of the story is be polite, be simple, and be clear. 4:50 Go with, "Thank you; we really appreciate your business. Please send payment within 7 days of receiving this invoice." 4:57 Rather than, "Payment terms: net 30." 5:04 Be smart about collecting payment. Always remind clients who are late, enforce guidelines, and keep tabs. 5:06 Luckily FreshBooks has a few features that can help us do this. Notice this column here that says "Status." 5:14 Well under that status it says "sent." That means that we sent our client the invoice but they haven't viewed in yet. 5:20 Once they view it, the status changes to "viewed." 5:27 This way you know whether your client is telling you the truth when they say they didn't get your invoice. 5:30 When your client pays off the invoice, you can log that payment in FreshBooks. 5:36 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. 5:40 FreshBooks allows you to do this in different ways. 5:48 As you use FreshBooks more, or any accounting software for that matter, 5:52 it will start to give you some great data to understand your business. 5:55 You should poke around all this information to see if you can do things better and improve your business. 5:59 Now let's assume we have a few projects under our belt with a couple clients. 6:05 Invoices have been issued, and we've received payment on some but not on others. 6:09 Once you start collecting all this data you will be able to do a better job with point #2 of why accounting is important, 6:13 and that's tracking who owes us money. 6:20 As you can see, FreshBooks shows you a quick overview of who owes you money. 6:23 Of the $3,000 some dollars you have outstanding, $250 of that is a month late. 6:28 But most of it is almost 3 months late. 6:33 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. 6:37 Know which clients are late and by how much so that you can evaluate what action to take. 6:43 You can drill down further by clicking down on the overdue amount to see which specific invoice was unpaid. 6:48 The software can also show you how often your client pays so that if you were to undertake a new project with them, 6:55 you have a better understanding of how to work with them. 7:01 Clicking on a client here shows that they usually take a certain number of days to pay us. 7:04 Since this number is clearly above our payment terms, it shows that we're either not clear enough with our payment terms, 7:09 or we're not doing a good enough job of enforcing them. 7:15 So there you go. Simple but effective ways to invoice your client. 7:18 Now I used the free trial of FreshBooks to show you around but once you have a paid account, 7:22 you can customize all the invoices to reflect your branding. 7:27 Now this isn't all there is to accounting, but don't worry. We'll tackle the problems as they come along. 7:31