Whether you run a company or you’re a freelancer, you probably know by now that invoices are some of the most important legal documents to keep track of. Apart from their obvious purpose of getting you paid on time and keeping a record of sales, invoices smooth out the bookkeeping process and provide legal evidence of your right to payment. Filling out invoices correctly and following the best practices is key to having your finances in order and building audit evidence.
And yet, many freelancers and business owners don’t know exactly how to organize their invoice system, and one of the biggest dilemmas is when an invoice should be issued. The most convenient option, and the best-case scenario, is to bill the client in advance to avoid cash flow issues. However, not all clients may agree to this, and some products/services are compatible with this kind of billing.
Pointers when deciding when to invoice a customer
So when do you invoice a customer? Most of the time, invoices are given on the spot — as soon as the job has been completed. This method works for a wide range of services such as plumbing, home repairs, appliance installation and maintenance, and so on. It’s the simplest and fastest option because most of the time the client is there with you. With some services, however, you can also consider waiting an additional 24 or 48 hours if we’re talking about a large-scale, complex service that requires client approval first. This way, if the client requires changes to the project, you’ll be able to adjust the price easily without having to redo the paperwork. Or if the client isn’t fully satisfied, you can avoid a dispute. No matter the case, when using this billing option, it’s essential to make the payment terms clear in advance.
When to invoice the customer before providing the service
Also known as a deposit or prepayment, this invoicing option can help you if you’ve just started the business or you’re experiencing cash flow issues. Still, you should be aware that not all clients are happy with paying you in advance, especially if you’ve never worked together before.
Apart from cash flow, there are also other reasons why you might want to invoice the customer in advance:
- They have a bad payment history. Every business seems to have that one client who’s always late with payments, disrupting cash flow, and bookkeeping. To avoid these problems, you can ask them to pay part of the cost in advance.
- The job requires an initial deposit for materials (as is the case with extensive home repairs, for example, where the deposit is around 15-20%).
- You’re embarking on a complicated, large-scale job, and you need a sign of commitment from the client before you get started.
- You’re working on a milestone basis. This option is especially popular among freelancers in fields such as IT, who divide large projects into small milestones and issue invoices before each one. For example, if you’re building a website for a client, you can send them an initial invoice as a deposit, another one after completing the design, and a final one after completing development. This way, you have the peace of mind that you don’t work for free, you avoid cash flow issues, and it’s also more convenient for the client because they don’t have to pay a large lump sum.
When to send recurring invoices
Last but not least, you can bill your clients every month if the service you’re providing is recurring and they are loyal clients. This invoicing option works for a wide range of services including house cleaning, web hosting, website maintenance, office supply delivery, and much more. Just don’t forget to confirm the terms with the client in advance and always notify them if something changes.