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What are the best practices for invoicing in industries with long payment cycles?

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If you work in an industry that has long payment cycles, such as construction, consulting, or manufacturing, you know how challenging it can be to manage your cash flow and get paid on time. Invoicing is a crucial part of your business process, but it can also be a source of frustration and confusion if you don't follow some best practices. In this article, we'll share some tips on how to invoice effectively in industries with long payment cycles and avoid common pitfalls that can delay or reduce your payments.

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1 Set clear terms and expectations

One of the first steps to ensure smooth invoicing is to set clear terms and expectations with your clients before you start working on a project. This means having a written contract that outlines the scope, deliverables, milestones, payment schedule, fees, penalties, and dispute resolution procedures. You should also communicate with your clients regularly and update them on the progress and any changes that may affect the invoicing. By doing this, you can avoid misunderstandings, disputes, and late payments later on.

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Igor Guerreiro

Financial Analyst | Financial Modeling | Analysis | Valuation. Investment Banking.
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Companies that have an effective invoicing practice maintain a balanced cash flow and can manage working capital. In my opinion, it can do a couple of things to help companies ameliorate its long payments cycles: 1. Monitor Cash Flow: Regularly monitor cash flow projections and aging reports to identify potential cash flow gaps or liquidity issues proactively. 2. Establish Clear Payment Terms: Clearly communicate payment terms upfront, including due dates, late payment penalties, and consequences for non-payment. 3. Clear and Detailed Invoices: Provide clear and detailed invoices that include all relevant information, such as the scope of work, itemized costs, payment terms, and due dates.

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Janet Otieno

Financial Analysis and Reporting,Accounts Payable specialist, Accounts Receivable Specialist, reporting, cost budget variance analysis, bank reconciliation,
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Invoicing and payment cycle are key components to management of working capital in an organisation. A healthy working capital is akin to blood flowing through the veins in a human body. An organisation functions properly with a good working capital. For long payment cycles, in my opinion, regular reminders and communication are key to ensure payments come in as and when expected.

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Jaimin Soni

Founder at FinAcc Global Solutions | ISO Certified | Your Partner in Offshore Accounting, Bookkeeping, and Taxation & ERTC related solutions | Helping CPA Firms and Businesses Succeed Globally.
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Clearly define payment terms and expectations in your contracts and agreements. Specify the payment schedule, due dates, and any penalties for late payments. Providing transparency upfront helps manage client expectations and reduces misunderstandings, contributing to a smoother invoicing process.

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ALI ASAD

Audit Manager @ RACO NEXIA || xCrowe || Co-Founder - Astral Accounting & Consultancy || Top Accounting Voice || Bookkeeping Expert || Writer || 20K+ Family
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Best practices for invoicing in industries with long payment cycles involve setting clear terms, invoicing promptly, following up gently, negotiating if needed, and regularly reviewing processes for improvement. Clear communication, accurate invoicing, and proactive engagement help maintain cash flow and client relationships.

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2 Invoice promptly and accurately

Another best practice for invoicing in industries with long payment cycles is to invoice promptly and accurately. This means sending your invoices as soon as you complete a project or reach a milestone, and making sure they are accurate, detailed, and consistent. You should also include all the relevant information, such as your contact details, invoice number, date, due date, payment methods, and terms and conditions. You can use accounting software or templates to create professional and standardized invoices that are easy to track and manage.

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Zithulele Sydney Ndlovu

Accountant ( Accounts payable and receivable, indirect procurement and payroll)at BUFFALO COAL DUNDEE
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Also to ensure that all invoices are kept updated to avoid doing everything on the last minutes that alone reduces the number of queries month end.

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Jaimin Soni

Founder at FinAcc Global Solutions | ISO Certified | Your Partner in Offshore Accounting, Bookkeeping, and Taxation & ERTC related solutions | Helping CPA Firms and Businesses Succeed Globally.
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Submit invoices promptly after delivering goods or services. Timely invoicing sets the payment cycle in motion and accelerates the overall cash flow. Ensure that invoices are accurate, including detailed descriptions of the products or services provided, quantities, rates, and any applicable taxes. Accuracy reduces the likelihood of disputes and accelerates the approval process.

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3 Follow up and remind

Even if you invoice promptly and accurately, you may still encounter clients who pay late or forget to pay at all. That's why you need to follow up and remind them of their obligations and deadlines. You can use automated reminders, phone calls, emails, or letters to gently nudge your clients to pay their invoices. You should also keep a record of all your communications and follow-ups, and escalate the issue if necessary. You can also consider offering incentives, such as discounts or rewards, for early or prompt payments, or imposing penalties, such as interest or fees, for late or missed payments.

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4 Negotiate and compromise

Sometimes, despite your best efforts, you may face situations where your clients are unable or unwilling to pay their invoices in full or on time. In these cases, you may need to negotiate and compromise with them to find a mutually acceptable solution. For example, you can offer them a payment plan, a partial payment, a discount, or a trade-off. You should also be flexible and understanding of their circumstances, but also firm and assertive of your rights and interests. You should also document any agreements or changes in writing and update your invoices accordingly.

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5 Review and improve

The last best practice for invoicing in industries with long payment cycles is to review and improve your invoicing process regularly. You should monitor your invoices, payments, and cash flow, and identify any issues or gaps that need to be addressed. You should also solicit feedback from your clients and staff, and implement any suggestions or improvements that can make your invoicing more efficient and effective. By doing this, you can optimize your invoicing process and ensure that you get paid faster and easier.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Kelly G. Peters, CPA, CMA

Principal, TCI Solutions, LLC
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In Government contracting, the Government has progress payment (PP) and performance-based payment (PBP) clauses. Thes clauses allow the contractor to bill based upon 80-90% of their costs or on milestone performance. They are used to get to the contractor and its subcontractors cash when the product takes a long time to produce and deliver. There is nothing that says the same concept can't be used in commercial work (I understand it's used in airplane manufacturing). It's something worth considering in this situation.

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What are the best practices for invoicing in industries with long payment cycles?

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1 Set clear terms and expectations

2 Invoice promptly and accurately

3 Follow up and remind

4 Negotiate and compromise

5 Review and improve

6 Here’s what else to consider

Accounting

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