Invoicing is the lifeblood of any business – after all, it‘s how you get paid for your products or services. But for many small and midsize businesses (SMBs), invoicing remains a persistent challenge and drain on time and resources.
Manual methods like paper, spreadsheets, and PDF invoices are still all too common, leading to billing errors, processing delays, and lack of visibility. This not only strains SMBs‘ cash flow but prevents them from scaling their operations efficiently.
Fortunately, SMBs no longer have to resign themselves to invoicing inefficiency. Thanks to a new wave of affordable, cloud-based invoicing software, it‘s easier than ever to automate billing tasks, get paid faster, and save hours each week.
In this post, we‘ll take a deeper look at the state of SMB invoicing in 2023, including key challenges, software trends, and best practices. If you‘re ready to spend less time chasing payments and more time growing your business, read on.
SMB Invoicing by the Numbers
Just how pervasive are manual invoicing methods among small businesses? Here are some of the most telling statistics from recent SMB invoicing research:
- 49% of SMBs rely on a manual process for invoicing (Paystand)
- 43% of SMBs say they spend too much time creating, sending, and following up on invoices (Xero)
- SMBs spend an average of 14.4 hours per month manually processing invoices (Clutch)
- 27% of SMBs say it takes more than a week to create and send an invoice (Melio)
- 55% of SMBs experience cash flow issues due to late payments (Intuit)
- 48% of SMBs have reported errors on invoices sent to customers (Fiverr)
- 33% of SMBs write off more than $10,000 per year in bad debt from unpaid invoices (Atradius)
These findings paint a clear picture: manual invoicing is a major pain point for small businesses, leading to wasted time, lost revenue, and financial instability. Something has to change.
The Cost of Outdated Invoicing Processes
What exactly makes manual invoicing so problematic for SMBs? There are several factors at play:
Time and productivity loss – Creating invoices manually, whether in Excel, Word, or on paper, is tedious and time-consuming. Employees spend hours each month on repetitive data entry instead of higher-value work. Invoicing errors lead to even more time wasted on corrections and back-and-forth with customers.
Higher Days Sales Outstanding (DSO) – Manual invoicing extends the time it takes customers to receive, process, and pay invoices. Slower collections mean higher DSO, tying up working capital needed to cover expenses and reinvest in the business.
Lack of visibility and control – Manual invoicing makes it difficult to track the status of outstanding invoices and follow up on late payments proactively. SMBs often lack real-time insight into their accounts receivable, leading to cash flow uncertainty and risk.
Negative impact on customers – Invoicing issues create friction in the customer experience, from incorrect charges to lack of clarity on payment terms and options. This can erode trust and loyalty over time, putting future revenue at risk.
Difficulty scaling billing operations – Manual processes are inherently difficult to scale as a company grows. Creating and sending a higher volume of invoices each month requires more staff time and opens the door to more errors and delays.
The Power of Automated Invoicing Software
The good news is that SMBs have more options than ever to streamline and automate invoicing. Cloud-based software has made powerful billing tools affordable and accessible for even the smallest businesses.
By implementing a dedicated invoicing platform, SMBs can:
- Save time – Automate invoice creation, delivery, payment processing, and reconciliation
- Reduce errors – Minimize manual data entry and catch mistakes before invoices go out
- Get paid faster – Accept online payments and send automatic reminders to speed collections
- Improve visibility – Track invoices and payments in real-time with built-in reporting and analytics
- Optimize cash flow – Forecast income, identify late payers, and make data-driven decisions
- Enhance customer service – Provide professional, accurate invoices and flexible ways to pay
- Easily scale – Handle a growing volume of invoices without adding headcount
In short, invoicing software enables SMBs to put repetitive billing tasks on autopilot and focus on more strategic priorities. It‘s a game changer for businesses looking to grow efficiently.
How to Choose the Right Invoicing Software
With dozens of invoicing solutions now tailored to SMBs, it can be difficult to know where to start. The key is to thoroughly evaluate your options and find the best fit for your specific needs. Here are a few factors to consider:
Ease of use – The whole point of invoicing software is to simplify your billing process. Look for a user-friendly platform that makes it easy to create and send invoices, with minimal training required. It should also offer a great experience for your customers.
Key features – Besides basic invoicing, consider what other capabilities you need, such as expense tracking, time tracking, project billing, recurring invoices, automatic payment reminders, and sales tax calculation. Some all-in-one accounting platforms include invoicing alongside other tools.
Integrations – Your invoicing software should connect seamlessly with the other business systems you rely on, such as accounting, payment processing, CRM, and project management. This will save you from manual data entry as information flows automatically between platforms.
Reporting and insights – To keep a pulse on your cash flow, you need clear, customizable reports on your invoicing and payments data. Look for a solution with a visual dashboard and the ability to drill down into granular metrics like DSO, billing by client, and invoice aging.
Pricing and value – SMB invoicing software ranges from free plans for basic needs to more robust paid options. Consider both the upfront and ongoing costs and weigh them against the time savings and efficiency gains you expect. Keep in mind that many providers offer discounts for annual contracts.
Support and reliability – As with any mission-critical business software, you want responsive customer support, comprehensive documentation, and a track record of uptime and reliability. Check reviews from other SMBs to gauge the level of service you can expect.
Invoicing Best Practices for SMBs
Implementing invoicing software is a big step toward more efficient billing, but there are other best practices SMBs should follow to optimize their processes:
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Establish clear invoicing terms – Set expectations with customers upfront on when and how you‘ll invoice them, payment deadlines, accepted methods, and any late fees. Get invoicing terms in writing as part of your contract or service agreement.
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Use a consistent invoice format – Create a professional, branded invoice template that includes all the necessary information: your company details, customer details, invoice number and date, line items with clear descriptions, quantities, and prices, payment terms, and total amount due.
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Invoice promptly and regularly – Don‘t delay sending invoices after you‘ve delivered products or services. Have a set schedule for when you generate and send invoices (e.g. weekly, or on the 1st and 15th of each month). This helps avoid surprises for customers and keeps cash flowing in steadily.
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Automate where possible – Use your invoicing software to set up recurring invoices for subscription customers, schedule payment reminders before and after the due date, and auto-reconcile payments to invoices. The more you can automate, the less manual work for your team.
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Offer convenient payment options – Make it easy for customers to pay you by accepting multiple methods, such as credit card, ACH bank transfer, digital wallets like PayPal, or even cryptocurrency. Include a "pay now" button right on the invoice to reduce friction.
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Proactively manage late payments – Don‘t let overdue invoices pile up. Use your software‘s aging reports to monitor outstanding bills and follow up with reminder emails or calls. Consider offering early payment discounts or payment plans if a customer is experiencing financial hardship.
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Monitor your invoicing metrics – Keep an eye on key performance indicators (KPIs) like DSO, average time to invoice, percentage of on-time payments, and total overdue invoices. Track your metrics over time and look for opportunities to adjust your process, payment terms, or collections strategy.
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Keep detailed records – Maintain organized records of all your invoices, payments, and customer communications. This will help you track your income, prepare accurate financial statements, and support audits or disputes if necessary. Cloud invoicing software makes recordkeeping much easier.
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Communicate proactively – Stay in close touch with customers about their invoices and payments. Let them know when an invoice is coming due, confirm receipt of payments, and thank them for their business. A little communication goes a long way in maintaining positive relationships.
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Train your team – Make sure everyone involved in the invoicing process, from sales to accounting, understands your policies, procedures, and software. Provide training and documentation to ensure consistency and accuracy across the organization.
Wrap Up
Invoicing may never be the most glamorous part of running an SMB, but it doesn‘t have to be a constant headache either. By ditching manual methods in favor of automated software and following invoicing best practices, SMBs can transform billing from a time sink into a well-oiled machine.
The benefits are clear: faster payments, improved cash flow, less administrative work, and happier customers and employees. In today‘s competitive landscape, that‘s the kind of efficiency small businesses need to thrive.
If you‘re still wrestling with spreadsheets and paper invoices, consider this your wake-up call. A better billing process is within reach – and your bottom line will thank you for it.
