Issuing invoices and cashflow
Staying on top of Cash flow
For any business, cash flow is extremely important. Every year lots of profitable businesses go bankrupt because they don’t have cash at the right time. A good invoice system and easy to understand payment terms are key to healthy cash flow. These are some tactics to consider:
- Send out your invoices promptly, and ensure that they are sufficiently clear and detailed, and that they reflect the terms of your contract, so that the client does not have any reason to query the invoice or delay or withhold payment
- Make sure that your terms and conditions are clearly outlined in your contract with the client, and that there is no scope for ambiguity
- Ask for a deposit payment in advance, of 20% or 50%, for example
- Don’t assume that you have to offer 30 day payment terms – try offering 14 days instead, and where third party expenses recharged at cost are involved, insist on repayment within seven days
- Offer early discount settlements
- Chase outstanding invoices and keep dated notes of all conversations.
What to put on the invoice
- A clear header saying ‘invoice’.
- A unique identification number – if your business is VAT registered, it is advisable that this needs to be a sequential number, in other words, part of a series, so that the next invoice follows on from the last.
- The name that you regularly use for the business. If it’s a limited company you also need to include the full name of the company as it appears in the certificate of incorporation (you can put the main brand name at the top and the officially registered name as small print in the footer). Limited companies can, if they want to, include the names of the company directors on their invoices, as long as all the directors’ names are included.
- Your business address. This must be an address where any legal documents can be delivered to you. If your business is a limited company and the business address is different to the registered address, then the registered address should also be included in the small print.
- Your company registration number if your business is a limited company.
- Your VAT registration number if your business is VAT registered.
- The company name and address of the customer you are invoicing.
- The date that the invoice is being issued (the tax date).
- A clear description of what goods and/or services were delivered.
- The date the goods or services were provided (supply date).
- A column showing the number of units of the goods or services supplied (for example 3 hours), a column showing the price/rate per unit and a column showing the total for each item without VAT.
- If your business is VAT registered, then add three more columns: the percentage of VAT that applies to each item, the total amount of VAT payable per item and then the total amount of each item including VAT.
- At the bottom show a grand total of all items without VAT, the total amount of VAT owed and finally, a grand total of everything including VAT.
Many agencies will ask you to sign a “self-billing” agreement. This just means that they will prepare a combined invoice and payment confirmation for you, based on your timesheet. This saves you the bother of having to bill them.
Many electronic bookkeeping systems include an invoicing function that lets you customise a template, generate invoice numbers, issue invoices and track payments. IPSE members can also download an invoice template by clicking here.
Invoicing clients outside the UK
If you’re supplying services to a client outside the UK, there’s the issue of what to do about VAT. Here’s what to do if your business is based in the UK and you are invoicing a client with an address in the EU:
Invoices sent to clients in countries outside the EU can be slightly more complex. They are also outside the scope of UK VAT, so in theory whatever local VAT is payable is the client’s problem. However, some countries may have special rules that could make it your problem as well. For non-EU countries it’s therefore best to double check with that country’s tax authorities.
- Don’t include any VAT on the invoice, irrespective of the fact that you are VAT registered in the UK
- Put the letters ‘GB’ either before your invoice number or in front of your VAT Registration Number
- Include the recipient’s EU VAT registration number on the invoice. If they don’t have one you need to prove it is a business transaction by asking them to send you a purchase order or official company request, which you keep on file in case you are ever challenged
- Include the following phrase on the invoice: ‘These services are outside the scope of UK VAT and are subject to reverse charge arrangements’
- Bear in mind these principles apply to the supply of most traditional freelance services – if it’s not a business to business transaction, or if you’re supplying goods, then that will change things and you should seek advice (if you’re a IPSE member the tax help-line is a good port of call).
- IPSE's Guide to Credit Management and Control
- Debt recovery guidance from Business Link
- Download the freelance toolkit Risk Buster tool here