5 ways to improve your invoicing process

In the earliest days at a startup, you may not follow a specific process or cadence to send invoices. You keep track of money owed, prepare an invoice, hit send, wait for a reply… and the reply is money.

While this may work when you have only a few customers, eventually, you’ll need a more defined process to handle volume, track payments, and manage overdue invoices. And since it’s easier to build processes before you need them, you should consider starting even when your customer base is small. Let’s take a look at a few easy things you can put in place that can make invoicing much easier down the road.

TL;DR: If you’re a founder or operator who wants to get paid faster with fewer follow-ups, you should know how to improve accounts receivable. Here are some easy ways to get started:

1. Identify the correct billing contact
2. Clearly identify products and services on each invoice
3. Offer multiple payment options with a clear payment policy
4. Use automation for sending, reminders, and cash application
5. Define your process for overdue invoices 

It may seem almost too simple — but getting your invoice to the right person at the right time can make quite an impact on getting paid. Payments can be delayed if you send invoices to the wrong contact — they ignore the invoice or never forward it to accounts payable, and you’re left wandering in the woods.

So it goes that identifying a billing contact should be part of your overall contract management. When you sign a new customer, make sure you don’t just know who your contact is — but who you’ll be sending invoices to. In some cases, you may need to send the invoice to an accounts payable department and cc another person (like a founder, manager, or “approver”) to ensure your invoice is processed promptly.

Your invoices should include a very clear description of what was delivered. The more information you include, the more you can reduce back-and-forth questions that may delay your payment.

For example, if you provide a service and send an invoice on November 1, indicate the service period. (Make it clear whether your customer is paying for the prior month  or for the upcoming month.) If you’re invoicing for products, provided a detailed itemization of what was delivered. Think: “3 black t-shirts (small)” rather than “shirts.”.

Invoice detail checklist 

Before you send an invoice, make sure each line item includes the following:

• Service period or delivery date: The timeframe or date the work was performed or goods were delivered 
• Item description or SKU: A specific name, product number, or description of the service
• Quantity: The number of units, hours, or deliverables 
• Unit price: The rate per unit, hour, or item 
• Applicable taxes and fees: Sales tax, shipping fees, or any surcharges 
• PO or contract reference: The customer's purchase order number, contract, or SOW number 
• Net terms: The payment deadline (such as Net 15 or Net 30) -
• Remit-to information: Where and how the customer should send payment 
• Dispute window: The number of days the customer has to raise a billing question (such as 10 or 15 business days after the invoice date)

A vague line item creates confusion and can cause delays. Here's the difference between a line item that slows you down and one that gets you paid:

By including all the pertinent details, you give your customers' accounts payable team everything they need to process the invoice without reaching out to ask questions.

Invoice detail by business model

• SaaS company: Reference the subscription tier, billing period, and any usage overages in each line item.
• Service-based business: Include the milestone name, percentage of project completed, and reference the original SOW
• Physical products: List the SKU, quantity shipped, unit cost, and PO number

Your customer base may have very clear payment preferences, such as using a credit card or sending a payment via ACH. Or you may have customers with many different preferences — and limiting their payment options can hurt your business. A customer with poor cash flow may pay late if they can only pay via ACH and can’t use a credit card.

Offering multiple payment options gives your customers choice and control over how they’re managing their cash flow. It also sets you up for the future when your customer base starts to evolve, and your customers expect to be able to pay invoices using their chosen method.

Matching payment methods to customer scenarios

Not every payment method makes sense for every invoice. 

If you’re not sure what payment methods to offer, here are some scenarios and factors to consider:

• Credit card: Best for customers who want flexibility or need to manage their own cash flow. Credit cards are are a good option for smaller invoices (under $5,000) and subscription-style billing with automatic monthly charges. Keep in mind that you'll pay processing fees (typically 2.5–3.5%), so factor that into your pricing.
• ACH transfer: A great option for domestic B2B payments. ACH transfers are generally free or very low-cost. The tradeoff is a slightly longer settlement window (1-3 business days before you receive the funds). An ACH transfer is initiated by the customer.
• Wire transfer: Reserve wires for large invoices (typically $10,000+) or international payments. Domestic wire transfers can settle within a few hours, but carry higher fees for the sender, so they're rarely worth it for smaller amounts. 
• Automatic debit: Unlike an ACH transfer, which requires the customer to initiate the transaction, an automatic debit or ACH debit is initiated by you, with the customer’s permission. This works well for subscription-based billing with predictable monthly amounts, but without the fees of credit card payments.

With any payment methods that incur fees (credit cards and wires), you can always opt to pass the fees along to your customers, as long as it is outlined in your agreement. Passing along fees comes with a trade-off. The additional cost might irritate some customers, or it may persuade them to use another payment method (like ACH). 

Setting a payment-method policy

You don't need to accept every payment method on every invoice. Your payment policy can reduce the fees you’ll pay and set clear expectations with your customers. For example:

• Accept credit cards for invoices under $5,000; for invoices above that amount, request an ACH transfer to avoid high credit card processing fees.
• Set a minimum invoice amount for wire transfers (such as $10,000) so customers don't default to wires on small invoices where ACH makes more sense.

Include your accepted payment methods and any fee-passing policy in your contract or master service agreement. That way, customers know what to expect before the first invoice arrives. 

Invoicing can be a bit laborious to execute, manage, and track. An Excel spreadsheet might work to track invoices when you only have a few customers, but it can become very inefficient before you know it. If you don’t have a specific cadence for sending invoices, you’ll have to prepare and email them to the billing contact manually. If everything’s manual, you might miss sending an invoice on its designated day or see delayed payments as you rely on manual follow-ups for past-due invoices. It also creates a bad experience for the customer if the timing of invoicing changes.

Automation can help with all of this.  The method of invoicing may also vary based on how customers sign up for your product or service. Are they signing up online and expect to pay instantly, or are they signing a contract that details the payment terms, such as monthly or annual billing or milestone-based?

Here are some accounts receivable process improvement ideas.

Here are some accounts receivable process improvement ideas. 

Step 1: Clean up your customer data 

Before you turn on any automation, make sure your customer records are accurate. If you have incorrect information, you’ll have inaccurate (or ineffective) follow-ups.

For each customer, confirm the billing contact name and email, payment terms (Net 15, Net 30, etc.), accepted payment methods, and the invoice delivery method (email, portal, etc.). 

Inaccurate contact information is one of the most common reasons automated invoices and follow-ups go unanswered. 

Step 2: Determine your invoice send cadence

With automation, you can set up a cadence to email invoices to your customers from your accounting software (or even your bank account), rather than manually attaching an invoice to an email that you send (also) manually.

You’ll also want accounting software that can set up recurring invoices to eliminate manual creation of future invoices for customers with recurring or subscription-based services.

As part of this step, decide when invoices should go out. For Saa or subscription businesses, invoices should be automatic. If you have recurring customers, billing on the same day each month (like the 1st or the 15th) makes it easier for your customers' AP team to expect and process your invoice. For project-based work, tie your invoices to milestone completion or delivery confirmation.

Step 3: Build a reminder sequence

Automations can send reminders to your customers that their invoices are due in advance of the due date and again on the due date. Automated reminders can also inform customers that their invoices are past due. This is also one of the fastest ways to improve accounts receivable collections.

Reminders are often the difference between being paid on time and an invoice going past due — but the higher your invoice volume, the less bandwidth you’ll have to send them manually, and the more important automated reminders will become.

Here's a sample sequence you can adapt for invoice process improvement.

3 days before due date: 

Subject: "Upcoming: Invoice #[number] due on [date]"
Body: A friendly heads-up that the invoice is coming due soon.

On the due date:
Subject: "Invoice #[number] is due today"
Body: A straightforward reminder with a direct link to pay. 

Step 4: Decide when to turn on automation

You don't need automation for your first three customers. But consider switching to automated invoices and reminders when you have recurring customers on predictable billing cycles, or when your monthly invoice volume exceeds 15–20 invoices. 

You’ll also want to add automation if you've missed follow-ups on overdue invoices more than once. At that point, manual processes are more likely to create errors than prevent them.

Step 5: Automate your cash application

Cash application is the process of matching an open invoice to a received payment. If your cash application is manual, this might be a process you need to complete daily. Otherwise, your accounting software may start sending automated reminders to a customer that an invoice is overdue, when, in reality, you’ve received payment — you just haven’t matched the payment to the invoice yet.

Automated cash application will do the matching for you so that you can take advantage of timely automated reminders.

How this looks by business model

• SaaS: Automated reminders and recurring invoices are a must. Set them up as soon as you have paying customers. 
• Services: You may need a more flexible invoicing cadence. Create an invoice when a deliverable is approved or at the end of each billing period, and adjust reminders based on the customer's typical payment cycle. 
• Physical products: If you don’t collect payment in advance, tie your invoices to shipment confirmation so the customer receives the invoice while the delivery is still fresh on their mind.

Mercury Invoicing

When you send invoices through Mercury you can best take advantage of automated cash application when payments are received.

Explore Invoicing

Inevitably, some of your customers won’t pay their invoices on time (or may not pay the full amount on time). You should decide whether or not you want to charge interest or a late fee if you think that will motivate your customers to pay promptly. Each state in the U.S. has its own laws regarding maximum late fees and whether or not you’re required to give a grace period, so that’s something to consider.

You can also consider other measures, such as cutting off a customer’s access to a subscription product or pausing services if you’re mid-delivery within a project. You may also opt not to continue the relationship with the customer going forward.

While automated reminders can prompt a customer to make a payment if they simply forgot, in other instances, you may need to take a more hands-on approach. You might ask your salesperson, account executive, or someone else within your organization who has a relationship with the customer to reach out if you’re not getting a response.

If your escalation process identifies the next steps for late invoices, it will be easier to maintain a consistent process. In your accounting system, you can identify any invoices that are overdue and take action based on the severity (such as 30 days overdue versus 90 days overdue).

Escalation timeline

A clear escalation timeline takes the guesswork out of your collections process. 

Here's a sample timeline you can follow:

3 Days Overdue: Send a friendly nudge.
Sample language: "Hi [Name], I wanted to follow up on Invoice #[number], which was due on [date]. If you've already sent payment, please disregard this note. Otherwise, you can pay directly using the link below." 

15 Days Overdue: Send a firm follow-up.
Sample language: "This is a reminder that Invoice #[number] is now 15 days past due. Per our agreement, a late fee of [X%] per month will apply to overdue balances beginning 30 days after the due date. Please remit payment at your earliest convenience or contact us if you'd like to discuss a payment arrangement." 

30 Days Overdue: Escalate internally and pause any services and outstanding work.
Sample language: "Invoice #[number] is now 30 days past due. As outlined in our agreement, we will pause [services/account access] until payment is received. A late fee of [amount] has been applied. Please contact [name/email] to resolve this outstanding balance."

60 Days Overdue: Decide whether to engage a collections process or write off the balance.
At this stage, the customer's account should be flagged in your accounting system, and your sales or account management team should be involved in any additional outreach.

Handling disputes:
If a customer raises a question about a line item or amount, pause your escalation process for that invoice while you work through the issue. Respond within two business days to acknowledge the dispute, and aim to resolve it within 10 business days. 

Once the dispute is resolved, restart the payment clock with an updated or corrected invoice. 

How this looks by business model 

The consequences for late payments will vary depending on your business:

• SaaS: Restrict account access or downgrade the customer to a free tier. 
• Services: Pause active work and hold any deliverables until the balance is cleared. 
• Physical products: Hold future shipments against open POs.

Include any consequences in your contract terms so your customer knows what to expect.

If multiple people on your team handle invoicing, it helps to have a standard operating procedure that clarifies who is responsible for each task.

Here's an invoice-to-cash workflow you can adapt for your team:

For a small startup, one person may handle all eight steps. As your team grows, this SOP helps you hand off responsibilities without creating a gap in your invoicing process. 

Review and update the SOP quarterly — especially after adding new team members or changing any of your invoicing tools. Accounts receivable automation and cash flow improvement will impact how you handle your invoice-to-cash SOP.

A poorly defined invoicing process can hurt your business in several ways. It can impact your cash flow if you don’t send invoices promptly or are delayed in collecting payments. And it can also impact your customers' impression of your company. Good invoicing processes will convey professionalism and maintain consistent communication with your customers.

Knowing how to improve the accounts receivable process and relying on tools for accounts receivable, you can make it easier for customers to pay you and spend less time on invoicing.

Don't have a Mercury account yet? You can create professional, personalized invoices in minutes with our free Invoice Generator — no sign-up required.