If you are a business that provides goods or services, chances are you invoice your customers in order to receive payment. An invoice is simply a bill that sets out the amount to be paid, what is being paid for, and the terms of payment. Although most businesses don't realize it, by giving customers an invoice, what businesses are really doing is extending credit to their customers.
Invoices are Credit
Most businesspeople tend to view an invoice as simply a request or demand for payment, but by providing the good or service in advance of payment and requesting payment after the fact, what businesses have actually done is extend credit to their customer.
More specifically, the law considers this to be an unsecured loan. Unsecured loans are loans that are not secured by collateral. Suing a customer to recover on an unsecured loan won't work if the customer simply doesn't have the money because there's nothing to recover against.
When extending credit to a new customer, since that is what you are really doing by invoicing them, it pays to check on their credit just like you would for any loan. Business credit checks are more complex than personal credit checks and should consider information such as:
If the account is especially large, consider hiring a professional credit research company that specializes in analyzing business creditworthiness.
When evaluating a customer's potential credit risk, there are a lot of factors to take into consideration. One piece of advice is to look at the long term and patterns, not the short term and one or two isolated instances. Another piece of advice is to look at yourself and evaluate how much risk you can afford to take. Here are some of the basic considerations to keep in mind when evaluating a customer's credit risk.
If you've decided that a customer is creditworthy, then it's time to create the actual invoice. There's nothing complex about an invoice, but the key to invoicing correctly is to be extremely clear in your description of the products and/or services rendered.
Don't use general statements about the good or service being provided, make the description detailed and accurate. Clearly state in bolded or offset lettering the time period the customer has to make a payment. Typical payment windows are 30, 60 and 90 days. Make it similarly clear how payment is to be made and to whom. Leave out no detail that a customer can use as an excuse for delay in payment.
Finally, provide contact information for the customer to call if he or she will be unable to make the payment as requested.
Letting a Lawyer Guide Your Business
Extending credit and invoicing matters can become tricky. You may wish to seek the advice of a legal expert before deciding to invoice potential customers. Speak to a skilled business and commercial law attorney in your area today.