Invoicing is an important process, which, if not done right, can significantly impact your business's bottom line. According to research, due to late payments, businesses lose up to $19 billion in locked-up earnings.
So, what can you do differently to guarantee your general contracting business has great cash flow and is getting invoices paid on time?
You can improve your invoicing process by sending invoices early, keeping close track of your billable working hours, incentivizing early payments, and using software to automate tracking of your invoicing processes.
Let's dive deeper into invoicing and how you can better the process in your general contractor business.
What Constitutes a Great Contractor Invoice?
A general contractor invoice represents a formal request to receive payments of a certain amount from a customer. This invoice will include any discounts, the due date for the invoice, and payment terms. These components make it a different document from an estimate or quote.
A quote only provides the customer with an estimate of how much it will cost them to have a particular service done. An invoice informs the customer that they owe the general contractor a specified amount, which is typically paid after work is completed, and before the payment terms due date.
Some of the essential details that are included in a general contractor invoice include:
- The name of the contractor's company and contact information
- The customer's name and contact information
- The invoice's date
- The due date and amount
- A concise brief or line-item description of the services or goods rendered
- The quantities of the goods, such as hours, units, and prices
- The payment terms
An invoice can be treated similarly to a contract. While making verbal contracts is possible, it's best to document invoices to protect your right to collect as a contractor.
What Are Invoice Payment Terms?
Invoice payment terms are one of the most important inclusions in a general contractor invoice. Typically, they specify how long the customer has until the payments are due. These terms may also offer incentives to promote early payments.
The "Net D" format is one of the most popular ways contractors express payment terms in their invoices. It communicates the days until the payment is due from the invoice date. For instance, Net 30 means the full amount specified in the invoice is due 30 days from the invoice date.
By adding a couple of numbers, you can also show any discounts available for early payments. For instance, an invoice with the payment terms "2.5/10 Net 30" means that the customer will get a 2.5% discount if they pay the total amount within ten days from the invoice's date.
Payment terms will also specify how the payment should be made, payment plans over time, and any late fees or penalties. For instance, late payment penalties may be accumulating interest on the amount due.
It's a great best practice also to include late payment terms in the contract that the customer signs beforehand to ensure they agree from the get-go.
Essential Invoicing Tips That Will Get You Paid Faster
You can do several things to ensure your invoices get paid faster and you close more sales as a general contractor. They include the following:
Requesting a deposit before starting work on a project ensures you get paid quicker and receive the full payment for your work. Doing this is essential for big projects that may take months to complete.
Deposits ensure that your business has a steady cash flow to cater to various project expenses, such as buying supplies and software. The cash flow will also help cater to other business expenses, such as salaries and facility costs.
Always Keep Track of Your Hours
From the first job, you should have a clear track of how many hours you've worked for a client. You can keep a record in your work diary or on a note on your mobile phone. However, you should use the time tracking feature in your invoicing software for the most accurate tracking.
These time logs need to be accurate for your invoices to be precise. With the time tracking feature, you’ll be able to clearly describe when you started work, when you finished, and what tasks you did. This way, it will be easier to write a concise brief or line-item description of your services in the invoice's details.
Incentivize Early Payments
Getting paid early is crucial if your business is to reduce its losses from late payments. Research shows that for every $10 million in annual turnover, a company can suffer losses of $115,000 in working capital if invoices are delayed by three days.
Therefore, despite thin margins in the general contractor business, you could save a lot of money if you offer discounts or other incentives for customers to submit payments early. Chasing after late unpaid accounts is often more expensive and time-consuming, both losses to your business’ productivity and profitability.
How early you get paid by customers also depends on when you send them their invoices. Ideally, you should send your invoice immediately after the job is completed to get the best odds of being paid faster.
Sending invoices early makes it easier to process since the work is still fresh in everyone's mind. The customer can easily track what is owed, budget to pay for it, and easily remember other details about the job, such as when they requested it and when your crew started handling it.
Enforce Late Fees
Late fees penalize the client when they miss payment deadlines. Enforcing them encourages clients to pay their dues on time.
To ensure minimal conflict with the client, ensure you’ve included your late fee policy in the invoice in the payment terms section. You should also discuss this policy directly with the client before starting work to ensure they’re not surprised by the provision during invoicing.
Use Invoicing Software to Maximize Efficiency
Invoicing software improves your billing process, making it faster, automated, and more efficient. Therefore, with invoicing software, you get fewer invoicing delays, cut administrative costs involved with manual invoice processing, increase revenue, and improve the customer experience.
For instance, data shows that paper checks can cost a business up to $25,540 annually in materials, labor, postage, and bank fees. Moreover, they take longer to process, typically a week before the money gets deposited into your account.
Invoicing software allows you to adopt online payment options that are faster and more convenient for your clients, giving them more ease and confidence in fulfilling their payments. Therefore, you get paid faster with fewer barriers to cash processing.
Keep Your Invoices Clear but Detailed
The client should be able to easily know what they're paying for clearly when reviewing their invoice. However, be careful not to provide too much information that makes the invoice too complicated or unnecessarily detailed.
The best way to ensure you always prepare and deliver a concise yet detailed invoice is by standardization. You can settle on a basic format and technique for labeling work completed, materials, or products to ensure the customer gets a clear and consistent invoice for every project.
If you're using invoicing software, you can use one of the numerous templates available to standardize your invoices' look.
Standardization keeps your invoicing well-organized and gives your general contractor business a professional look.
Get Invoicing Software from a Trusted Vendor
General contractor invoicing should be precise and completed quickly for faster payments, lower processing costs, and a better customer experience. You can achieve this through software that offers the right features that your business needs. Contact FieldBin, a trusted invoicing software, vendor today and transform how your general contractor business invoices.