We are continuing to crunch the numbers on 300,000+ invoices to bring you insights to improve your cash flow. This time, we dive into the value of invoices issued vs time to get paid.
Surprising, we found that invoices that were $20K in value were paid the fastest. Whilst invoices with less than $2K in value were also paid relatively quickly.
This suggests that you can improve your cash flow and get paid faster by:
1) Splitting a single invoice worth more than $2K into a few $2K invoices; or
2) Bundling a few invoices worth $2K to $20K into a single $20K+ invoice.
What the numbers told us:
- Terms offered to customers did not vary base on the size of invoice. On average, businesses offered 14 to 17 day terms.
- Days for customers to pay (from date of invoice) varied a lot, based on size of invoice.
- Invoices valued between $2K to $5K were paid 50% slower (at 65 days) than invoices valued less than $2K (at 41 days).
- Invoices worth more than $20K were paid the fastest at 37 days from invoice. This is nearly 100% quicker than invoices worth $10K to $20K
How to implement these findings into your invoicing practice?
We sat down with Brad Golchin from XO Accounting to get his expert views on how to use this information to get paid faster. Some ideas from Brad:
1) Splitting invoices into $2K invoices
Split larger invoices into a few $2K invoices, and issue them to clients more frequently.
For instance, if you had one $6K invoice for the end of a job that goes for one month, you can send out three invoices instead. This could be a $2K invoice before the job starts. Then, a $2K invoice 14 days into the job. Finally, a $2K invoice at the end of the job.
2) Bundling into a larger invoice
This is probably more controversial concept, as most people will suggest that you should send out invoices as soon as you can. The idea here is to hold back invoicing date and combining multiple invoices into one invoice.
- You have a long term contract with a client. You can issue invoices on a monthly basis for $15K per month.
- Alternatively, you can bundle two invoices into one $30K invoice and send it out every 2nd month.
- By bundling invoices, you will get paid the full $30K faster than collecting the first $15K invoice if split into two invoices
- How the maths work for monthly invoicing
- Invoice 1: sent 31 Jan + 73 days to pay = 14 April payment
- Invoice 2: sent 28 Feb + 73 days to pay = 12 May payment
- Compared to bundling two invoices into one:
- Invoice sent 28 Feb + 37 days to pay = 6 April payment
I would love to hear about your feedback on this. If you have tried this let us know about your experience.
About Brad Golchin (@BGolchin)
Brad is the Director of XO Accounting, a new breed of modern, online accountants, using the latest technology to make it easier, faster and more affordable to run your business or investment portfolio. They aim to reduce the amount of time you put in to your accounts, to give you time to run your business. That’s why they focus on giving you instant access to the clear, accurate financial information and expert business advice you need to help you operate more efficiently and profitably.