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Perfect invoicing: A preflight checklist

Last updated: May 13, 2022

Perfect invoicing

Invoicing may appear to be a mechanical process, but in order to get the best results, thought must go into the document itself and the processes around it. By following best practices, it is possible to avoid many of the errors and heartaches associated with invoicing that can lead to lost revenues and endanger client relationships.

In this article, you’ll learn:

Invoicing is harder than it looks, and it’s important to get it right. In this article we’re going to take you through the A-Z of invoicing, which consists of:

  • The setup: What must be agreed upon up-front with the client in the contract.

  • Building the invoice: Deciding what goes in and what to leave out.

  • Preparing to send: Gathering the data and checking the invoice is good to go.

  • Handling the follow-up: Ensuring that money is paid on time and the relationship stays intact.

Invoicing features

Why invoicing matters

According to a survey of small businesses by the payments firm Melio, the majority of US small business owners are paid late. Another study by the London School of Economics found that 15% of eligible billable consulting hours are not even billed to clients! 

And it’s not just business owners who suffer - it’s customers as well. A 2019 study found that 17% of firms named ‘confusing billing or activity tracking’ as the primary reason for clients ending the relationship.

Everyone stands to gain from better invoicing. But what does ‘better’ invoicing actually look like? Better yet, what would perfect invoicing look like?

Step 1: The setup

By establishing the rules of engagement correctly and clearly, you are literally setting yourself up for success. This does not need to be in a formal contract, provided that it is transparent to the client.

How to set up an invoice

Agree your rates

We won’t go into a detailed review here of how to price your services and set rates (this is covered in another article). We will instead try to highlight the potential danger areas when setting up your terms of business.

  • More invoices → more caution. If there is only one invoice, there is clearly less scope for controversy. On the other hand, when a project is billed on an hourly basis and invoices are sent periodically, it is very important to define the charging rationale.

  • Be prepared to “show your working”. Whether you are setting your rate based on task, project, or individual team member, fees should follow a discernible logic and be internally consistent. For instance, higher seniority → higher rates.

  • Appeal to market value, not to cost. Cost is an internal matter and should not come into conversations with the client. The rate level should make sense relative to the market, although it’s obviously okay to go higher if you deliver a superior product.

Sort out what is billable/non-billable

Ultimately, there are no ‘right’ or ‘wrong’ billable categories, only clear and unclear. It is always worth clarifying what activities are chargeable, as disputes occur on fuzzy boundaries.

  • “Ancillary” is still billable. Non-core activities such as background research, document formatting, and project administration are typically considered billable activities. To avoid challenge on this point, this should be explicitly stated.

  • The “cui bono” (=who benefits) test: A task is non-billable if it benefits you but does not directly benefit the client and the project in hand. Training of employees, for example, or internal firm meetings to discuss general capacity allocation, fall into this category.

  • Common “borderline” items: By convention, clients should not be billed for errors and the time required to clean up after them. Also, invoicing itself is not considered a billable activity. 

Agree on what expenses are acceptable

Just as with billable work, this is largely a question of common sense, and important to guard against the small but material possibility of an argument over an unexpected item.

  • Guidelines for “big-ticket” expenses. Non-trivial items such as 3rd party expenses (e.g. cost of a survey panel) and travel expenses (especially flights) should have guidelines attached to them (e.g. “economy class only”).

  • Transparency is king. Many expense-related disputes are not about the material financial impact, but the client’s sense that they are being taken for a ride. Just because an expense is small, this doesn’t mean it shouldn’t be clearly disclosed.

Decide on description length, frequency, and rounding approach

Not only does your client need to be forewarned regarding the granularity of your time-reporting, but your team also needs clear guidance.

  • Description length. Long descriptions aren’t necessarily better, but a consistent approach is important for when a client (or you) wants to review activities in more detail, and also helps to communicate, and so defend, your value.

  • Frequency increment. How often entries are recorded should also be agreed up front. In choosing a level of granularity, it is generally advisable to follow the prevailing convention that exists in your industry.

  • Rounding policy. A similar logic applies here in terms of following the convention or regulation. Rounding minutes up or down (e.g. to the nearest 15 minutes) may be subject to specific restrictions in the country in which you operate.

Define the billing period

Billing periods obviously do not apply to small jobs with a single bill or a project with multiple invoices based on milestones. In the case of hourly billing, or other periodic invoicing, some useful pointers include:

  • Be consistent. Particularly in the case of hourly billing, where the amount is variable, having a regular cadence (weekly, bi-weekly, or monthly) makes life easier for your client’s accounting department, increasing the likelihood that you will be paid on time.

  • Frequent billing can lower ‘sticker shock’. If you are billing large amounts, billing more frequently may be advisable, as it makes the payments more psychologically manageable, and may help the client with budgeting.

Establish payment terms (& method)

While it is just a number, defining how and by when you expect to receive payment following the issue of an invoice is a crucial decision, as it affects your working capital.

  • Use common deadlines. 14 days after invoice receipt is the most common deadline, but 7, 21, and 30 days are also used.

  • Make it easy! Obvious as it sounds, you can increase the likelihood of payment by removing obstacles. This means offering multiple options, including the ability to pay by automatic debit, or embedding a credit card payment link in the invoice itself.

  • Have a late payment policy. Since some clients may persistently miss deadlines. You should have a penalty for late payment (e.g. 1.5% of the outstanding monthly balance). To offset this, offer a discount for up-front payment (e.g. equal to the late fee penalty).

Step 2: Building the invoice

Defining the structure of the invoice is not an ongoing process, and only needs occasional updates. But as it is a document that will be replicated hundreds or thousands of times over the years, the work you do to get it right will pay off many times over.

How to build an invoice

Pay attention to aesthetics

Everyone accepts that you must pay for quality, so communicate the quality you are charging for when you send the bill for your services.

  • A neat, professional layout. It’s a given that your invoice should be easy to read. An untidy layout will communicate subliminally that you run your business in a disorganized fashion, and make it more likely that clients will question the bill.

  • Design to the brand. If you are a premium provider, your brand (not just your logo) should be visibly reflected in the invoice design. There are countless ways an invoice can be arranged, and you should opt for a configuration that is pleasant to look at.

Include all essential elements

While you’re not restricted in terms of what you can include, the following core elements should be in place in any invoice. This is not rocket science, but it is still important:

  • Invoice date: Typically the date on which a service was completed, or in the case of periodic billing (e.g. hourly) the agreed regular billing date (e.g. last day of the month).

  • Invoice number: A logical sequence (001, 002, 003…) will help you and your client sort, locate and track paid and unpaid bills (e.g. searching emails for a specific invoice number).

  • Your business information: In addition to the business name and logo, you should include all contact details (land, email, phone, social media if applicable).

  • Client information: Including the same information for the client as for your own business helps to verify your identity to the client, as well as making the design pleasingly symmetrical.

  • Line items: A complete line item contains the details of the product or service, the number of hours worked and the rate per hour (if applicable), and the final cost. If you are billing for services, the items should be at an appropriate level of granularity (i.e. not at a task level, if the project consisted of hundreds of tasks).

  • Total cost (including VAT): The total section should include and ideally break out the taxes and/or discounts applied to the subtotal, before presenting the grand total payable (which should be highlighted, whether in bold or underline, so that the client can immediately identify it).

  • Payment terms & due date: The second most important item after the grand total is the date by which the payment is due. This should be included alongside a reminder of the payment terms as stated in your original agreement or contract.

  • Payment instructions: In addition to including information on address and/or bank details for settling the bill, this section could also include any helpful links to enable online or auto-payment (e.g. via Credit Card or PayPal).

  • Payment policy: Finally, if you have any policies regarding late (or early) payment, these should be included below the payment instructions, not in the classic “fine print” on the back page.

Step 3: Preparing to send

In the modern day, thanks to automation, collecting and preparing data for invoices has the potential to be much easier than it used to be.

How to send an invoice

Eliminate manual steps wherever possible

The old-school approach (which many companies still follow, sadly!) relies on the accountant or accounting department preparing paper invoices to be printed out and sent in physical form. 

In the process of manual data entry, collating, proofreading, and correcting, much work is required to ensure that:

  • Client data is correct

  • Fees are accurate

  • Transactions are appropriately recorded in the company’s general ledger.

The process is onerous and bureaucratic partly because of the importance of billing clients accurately, but also to ensure that reliable records are kept at the company itself for internal access and for audit purposes. 

Quite apart from the fact that all manual processes are prone to error, manual processing of invoices is also expensive, costing an average of $4 per invoice.

Take advantage of invoicing software

With a digital-first process, it is possible to collect and prepare data required for invoices quickly, cheaply, and with a far lower chance of error. It also makes secondary uses of the data for analysis and audit purposes far easier for the same reasons.

Furthermore, time-tracking software applications are specifically designed for invoicing and integrate with existing accounting software. These also include features such as automatic reminders for the client prior to payment.


You should be wary of using systems that require you to manually upload or transfer data (e.g. from Excel) to the application. As a manual process, it re-introduces the potential for human error.

Typically these errors are discovered too late (i.e. after the faulty invoice has been sent to the client). Ideally, the process should be ‘end-to-end’ in order to realize the full benefits.

Do not over-automate!

Part of the skill of using automation lies in the ability to discern what parts of the process still require a human element. Some parts of the process should not be automated.

A good example of risky automation is the ‘auto-send’ feature, which can lead occasionally to awkward situations (i.e. where you must retract the invoice) and should hence be avoided.

Your approvals process should sit in between your invoicing software and your client. 

In other words, you should clearly define:

  • Who needs to approve (Project Manager, Finance) and if multiple people and departments are involved.

  • The order of approval if certain clients or bills above a certain amount need multiple checks.

Step 4: Handling the follow-up

Once the invoice is issued (and even when it is paid) you are not home and dry!

Since human relationships are involved, the invoicing process cannot be viewed purely as a financial transaction. In addition to accuracy and efficiency, sensitivity is also a must-have to ensure a mutually profitable ongoing relationship.

How to follow up on an invoice

Identify the key decision-makers

By the time something goes wrong, it’s generally too late to start building relationships with the key decision-makers on the other side who have the power to resolve the problem. You need to form these relationships in advance, and this first requires identifying who they are.

Communicate, communicate, communicate!

While it is possible to over-automate (see above), it is almost impossible to overcommunicate. Healthy communication obviously includes helpful reminders to clients when an invoice is coming due. 

However, there is a 5:1 rule that only one in six communications to clients should be about bill payments. The relationship-building comes from the other five, so that when you do raise the topic of payment, that conversation has a strong foundation.

Apply emotional intelligence

Communicating in a ‘human’ way means using emotional intelligence. This could mean:

  • Sending a thank-you note after a client has promptly paid. Although a small gesture, this move costs nothing (and can even be automated) but shows respect, and also reinforces expectations of prompt payment.

  • Reaching out in advance of a potential “surprise” can allay a client’s negative reaction by pre-acknowledging it. For example before sending an unusually large bill - e.g. after helping a client deal with an emergency, requiring more staff and an intensive short-term spike in workload or applying a fee increase (even if it is routine) can be smoothed by reaching out to re-iterate the rationale the context.

  • Requesting a testimonial. Although this is apparently asking a favor of the client, it is also a great way to cement the relationship. A client who supports your brand has essentially staked their name to your success.

Pick your battles

Step 1 (setting expectations clearly up-front) should minimize the chances of conflict or dispute over payment. Inevitably, however, there will be clients who refuse to pay or unfairly accuse your team of acting in bad faith. 

If you have followed your dispute resolution process to the letter, and still the client refuses to budge, you have the choice of:

  • Play hardball - go down the legal/3rd party collection route

  • Part ways - cut your losses and burn your bridges

  • Grin and bear it.

These are not choices to be taken lightly.

It may make sense to concede a small unpaid expense to save the relationship. On the other hand, a client who systematically causes issues is likely to have a net negative effect on your business and may be worth letting go. 

In such cases, the only rule is that there is no rule. It is always a judgment call.


Invoicing is not just about sending bills. While technology may help, there is a significant amount of human intelligence required to make the process go smoothly. 

But with the above checklist at your side, you won’t go too far wrong.

Thanks for staying with us through this monster of a post :) Now, go get paid!

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