Running a small business in the age of rapid globalization is a challenge. As a business owner, you have to wear multiple hats. You are the store manager, customer care executive, marketer, and the accountant, all at the same time. However, one of the frustrating and mundane responsibilities you have to carry out is dealing with invoices…
Only timely invoice payments will ensure you are bringing in more money than you are sending out. Unfortunately, late invoice payments plague many SMBs. A quarter of SMEs in Northern Ireland and over two fifths in the UK suffer from late payments with over half them being forced to write off up to 10% of their turnover.
In other words, if you don’t want to lose your hard-earned money, you need a strategic small business invoicing strategy. That’s where online interim invoice can help you.
Let’s start with the basics.
1. What Is an Interim Invoice?
Instead of asking for the payment in one lump sum, an interim invoice allows you to collect the total amount in small installments. You can either design these installments as fixed monthly payments or when a particular stage of work is complete. You will need to send the final invoice after the project ends with the details of interim bills and respective payments. Almost every online invoice generator allows you to send an interim invoice.
Let’s say you are offering SEO services to ABC for six months starting from 1st August, 2019. You can charge the client with $300 each month. For the first five months, you will be able to collect a total of $1500 from the client. In the final month, you can foot the final bill for $300.
However, you will need to make the adjustments in the final bill for extra work hours (if any) plus the profit you intend to make. For example, if you did extra work worth $500, and intend to make a profit of $600, your final invoice will be $1400.
|Outstanding Monthly Charges||$300|
|Extra Man Hours||$500|
|Profit to be Footed||$600|
|Total Final Bill||$1400|
The total amount you will collect from the client in this case will be $2900 ($1500 + $1400).
2. Why Use Interim Invoices?
Most small businesses use interim invoicing for the following three reasons –
- Maintain a Liquid Cash Flow – As you keep getting monthly payments, interim bills allow you to maintain the cash flow. A highly liquid cash flow, in turn, helps you run your business smoothly without incurring unnecessary debt.
- Avoid Costly Write-Offs – It can also help you avoid costly write-offs as you get a bigger chunk of your payment before the project is over. You can afford to follow-up for the final outstanding amount via email. If the client stops paying in the middle of the project, you can also stop working until the dues are cleared.
- Offer Flexibility – This is an advantage for your clients. Instead of arranging for a lump sum payment, they can pay you in small installments. You can also add or remove services during the project tenure and charge the client accordingly.
3. When to Use Interim Invoices?
As you can see, you can use interim invoice only for large projects or services stretching over a long period. Usually, you can use it for projects that will run longer than three months at least. You can’t use this method for small projects and short-term contracts. You will also need to consult the client to see if they are open to this idea. Although it is rare, some clients may refuse to use this invoice format.
4. Understanding the Structure of an Interim Bill
The structure of your interim bill change depending on the type of service or project you are undertaking. For example, a contractor will need to provide measurement details along with measurement books, a statement of recoveries, deductions, advances, and extra payments if any, and cumulative information of work completed till the date of billing.
On the other hand, a digital marketing agency will need to include only the details of completed work, work in progress, and the amount billed as decided in the contract. However, usually, an interim invoice has the following details.
- Invoice number
- Date of invoice as well as the due date
- Purchase Order (PO) number
- Bill-Of-Material (BOM) number, if applicable
- Name and contact details your organization and your client
- An itemized description of services and products you are charging for
- The total amount you are charging including the breakdown of relevant taxes, discounts, and any other charge
- Terms of payments, including late payment charges, if applicable
- Special instructions or notes for the client, if any
In addition to this information, you will need to mention the total due amount in the final invoice when the project is complete along with the details of all previous interim invoices.
Once you have sent an interim invoice, you should expect the client to make the payment within the stipulated time. If not, you will need to follow up. Today, invoicing software has made online invoicing easier, to create different types of invoices, including interim bills. You can also integrate almost any invoicing tool with other business applications to create more accurate invoices and an automated follow-up via email reminders.
As you can see, an online interim invoice is a powerful tool for small and medium businesses. It will not only help you maintain cash flow, but also offer clients the flexibility of paying in small installments. Are you still using an Excel sheet for your small business invoicing needs? Maybe, it is time to switch to an online invoicing tool. The question is when are you going to do it? Let us know in the comments section.