When to invoice a customer: Best practices for every business model

Last updated 16 October 2023
  1. Introduction
  2. What is an invoice?
  3. What are invoices used for?
  4. Customer invoices: When should you send them?
  5. Best practices – and mistakes – when sending invoices
    1. Best practices for invoicing
    2. Common mistakes to avoid
  6. How Stripe Invoicing can help

Getting invoice timing right is an integral part of a business's cash-flow management and customer experience. A well-timed invoice can mean the difference between a healthy cash flow and an unexpected financial tight spot, as well as between an effortless customer experience and one that's burdened by undue friction.

Invoice timing is connected to a variety of factors, such as the nature of your business, the terms of your contract and your relationship with the client. It's a balancing act between ensuring that your company's cash flow remains robust and maintaining good client relationships by not seeming overeager to collect payments. Knowing when to send an invoice plays a key part in striking this balance. Below are key considerations and strategies for timing your invoices effectively, based on what type of business you run and how you work with your customers.

What's in this article?

  • What is an invoice?
  • What are invoices used for?
  • Customer invoices: When should you send them?
  • Best practices – and mistakes – when sending invoices
  • How Stripe Invoicing can help

What is an invoice?

An invoice is a document that a seller issues to a buyer. It outlines the goods or services provided, the quantities, the agreed prices for these items and the total amount that the buyer owes. It serves as a bill or a claim for payment, enabling a seller to ask the buyer to fulfil their obligation. The invoice also includes the date of issue, a unique identifier or invoice number, and the contact information of both parties.

Beyond acting as a request for payment, an invoice serves as a record of sale for both parties and can be used for financial record-keeping, tax purposes and, potentially, as a legal document in the event of a payment dispute.

What are invoices used for?

Invoices serve several important functions in business transactions:

  • Request for payment
    An invoice's primary purpose is to request payment from a buyer for goods or services rendered, and to detail the amount due.

  • Record of sale
    Invoices serve as a record of the transaction between a seller and a buyer. They document what was sold, how much was sold and at what price. This can be particularly helpful in tracking sales, analysing business performance and making informed business decisions.

  • Legal protection
    If there's a dispute over payment or the details of a transaction, an invoice acts as a legal record. It clarifies the terms agreed upon by the buyer and seller, providing protection to both parties.

  • Financial management and accounting
    Invoices are important for maintaining accurate financial records. They help to track revenue and are essential for budgeting, forecasting and financial reporting.

  • Tax preparation
    Invoices serve as evidence of income, making them essential for calculating taxes. They can also provide a record of tax collected from sales (such as sales tax or VAT) within jurisdictions and tax regulations that allow it.

  • Audit trail
    In terms of financial audits, invoices serve as evidence of business transactions, ensuring compliance with tax laws and business regulations.

Customer invoices: When should you send them?

Understanding when to send an invoice is important to maintaining a healthy cash flow for your business. The timing depends largely on the nature of your business, the terms agreed upon with your customer and the type of invoice that you are using. Here are a few common scenarios:

1. Service-based businesses
For service-based businesses such as consulting firms, marketing agencies and freelancers, invoicing often occurs after the services have been delivered. This is referred to as "invoicing in arrears". For example, a freelance graphic designer may complete a project and then issue an invoice detailing the hours worked and the agreed-upon rate.

In some cases, service providers invoice periodically, such as monthly or quarterly, especially for ongoing services. A digital marketing agency, for instance, could send a monthly invoice to their clients for continuous SEO services.

2. Product-based businesses
Businesses that sell physical products often send an invoice at the point of sale. For instance, a retailer would issue an invoice immediately after a customer purchases items from their shop.

In e-commerce, a business sends an invoice once the customer has confirmed the order and the invoice often accompanies the delivered goods. For example, an online clothing retailer would send an invoice as soon as a customer's order is processed, detailing the items purchased and the total cost.

3. Progress billing
For large-scale projects, such as construction or bespoke software development, businesses often use progress billing, where invoices are issued at various stages of the project. These stages could correlate to when certain milestones are met or when a specific percentage of the work is completed. For instance, a construction company might invoice after the completion of each project phase: foundation, framing, roofing etc.

4. Recurring billing
For businesses providing subscription-based services, such as SaaS products or a magazine subscription, invoices are usually sent at regular intervals – monthly, quarterly or annually – as per the subscription agreement.

5. Up-front payment
In certain cases, businesses may require payment in advance, especially when there's a significant outlay for materials or when the customer's credit is uncertain. In this case, the invoice is sent before the business delivers the product or performs the service. For instance, a custom furniture manufacturer might require a 50% payment up front to cover material costs, and they would send the customer an invoice detailing this advance payment.

6. Retainer model
In the retainer model, which is often used by law or public-relations firms, clients pay a set amount on a regular basis (usually monthly). The firm provides an invoice detailing how the retainer was used – for instance, how many hours worked and on which projects – and any extra charges beyond the retainer.

In short, the timing for sending customer invoices depends greatly on your specific business model, the nature of the goods or services that you provide, and the agreement with your clients. Regardless of when you send your invoices, remember to be clear on your payment terms, prompt with your invoicing and consistent in your follow-up to ensure timely payments.

Best practices – and mistakes – when sending invoices

A well-managed invoicing process is essential for the financial health of any business. To optimise this process, let's take a look at some best practices and common mistakes surrounding invoicing procedures.

Best practices for invoicing

  • Give clear and detailed information
    Always ensure that your invoices contain all the necessary information, such as the contact details of both parties, a unique invoice number, the date, a detailed list of the products or services provided, the total amount due and the payment terms. The more specific and clear the information, the less room there is for confusion or dispute.

  • Use professional invoice templates
    Using a professionally designed invoice template can enhance your business's image, ensure that you include all the necessary information and help to maintain consistency.

  • Establish clear payment terms
    Be clear about your payment terms. Include due dates, acceptable payment methods and details about any late fees or early payment discounts.

  • Prompt invoicing
    Send invoices out promptly following the completion of a sale or service. Timely invoicing helps to enable timely payments.

  • Regular follow-ups
    Following up – politely – on unpaid invoices is key. Develop a system for reminders that escalates from gentle nudges to more formal notices, as needed.

  • Embrace technology
    Consider using digital invoicing software. These tools can automate many aspects of the invoicing process, including sending out invoices, reminding customers about upcoming and past due payments, and keeping track of your cash flow.

Common mistakes to avoid

  • Procrastination
    Delaying the invoicing process can lead to delayed payments, which can have a negative effect on your cash flow. Aim to send the invoice as soon as the product or service has been delivered.

  • Ignoring partial payments
    If a customer has made a partial payment, sending an updated invoice showing the remaining balance is essential. This ensures clarity about what the customer still owes.

  • Inconsistent invoicing
    Inconsistencies in invoice design, information or timing can create confusion. Ensure that you use a standard template and have a regular invoicing schedule.

  • Overlooking errors
    Double-check your invoices for mistakes in quantities, prices or calculations before sending them. Errors can lead to disputes or delayed payments.

  • No follow-up plan
    Businesses often focus on creating and sending invoices but forget to strategise about following up on payments. Establish a system for follow-ups and dealing with late payments.

Paying attention to these best practices and common pitfalls can help businesses create an effective and efficient invoicing process, which in turn contributes to a better, more reliable cash flow, fewer payment disputes and less unnecessary time spent chasing payments.

How Stripe Invoicing can help

Stripe Invoicing is a tool that addresses invoicing challenges and elevates best practices. Here are some of the primary features and benefits of Stripe Invoicing.

  • Fast and scalable invoicing
    Stripe Invoicing allows you to create and send invoices to your customers in minutes, and it can scale to your business needs. This ensures that no matter how large or diverse your customer base, invoicing won't slow you down.

  • Easy customisation
    Stripe Invoicing lets you generate custom invoices directly from your Dashboard. You can update the logo and colour settings, and also add product details, line items, discounts, tax rates and more to align the invoice with your brand identity.

  • Global payment acceptance
    With support for more than 30 languages, upwards of 135 currencies and a variety of global payment methods, Stripe Invoicing ensures that your customers can pay in a way that's convenient for them, leading to faster payments.

  • Automated accounts receivable
    Stripe Invoicing automates accounts receivable processes, including payment reminders and collections. This automation reduces the time spent tracking and collecting invoice payments and helps to keep your financial records in order.

  • Operational simplicity
    Stripe Invoicing helps to simplify operations by allowing you to manage invoices and view detailed reports directly from the Dashboard. It enables you to easily update, void, duplicate, refund or mark invoices as paid outside of Stripe.

Learn more about how Stripe can help your business address the challenges associated with invoicing and optimise your invoicing process to be faster, more efficient and more customer friendly.

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