Being more flexible in your credit and invoicing processes may be quite beneficial as a small business owner. Interim invoicing can be an excellent tool for providing such flexibility. Businesses that provide interim invoicing choices allow their clients to make smaller, more manageable payments, ensuring that your business receives consistent revenue. This is why we've put together this brief guide to what interim invoices are, why they should be used, the benefits they provide, and how to create them.
What Is An Interim Invoice?
An interim invoice, also known as a progress invoice or progress bill, is an invoice for a portion of an order. Companies can invoice a client in installments for a purchase or service. This method is frequently used for major purchases or long-term initiatives. These interim invoices would be based on a cost estimate agreed upon with the customer. This may be handy on a longer project or one that requires a lot of back and forth because you know you're not waiting till the final product gets paid and your customer doesn't simply have that one giant final invoice to pay at the end.
When Is an Interim Invoice Necessary?
The circumstances in which an interim invoice should be used can vary depending on the business and project, but as a general rule, most smaller businesses prefer to have cash going through the books on a regular basis. If you normally invoice at the end of a major project, issuing interim invoices regularly will make sense. This assures a consistent financial flow. Another situation in which interim billing may be advantageous is if your client is experiencing financial issues. Rather than going to court or writing off the debt, you might try to work out an installment plan or partial payment based on the concept of interim invoicing.
Of course, the frequency and amount must be decided upon and included in any contracts at the outset of the project.
What Are the Advantages of Interim Invoices?
Using interim invoices has several advantages:
Cash Flow: Interim invoicing can help maintain a consistent cash flow in your business. This means you won't have to wait until the completion of a large (and perhaps time-consuming) project to be paid. This can enhance your company's financial stability. Because cash flow is the lifeblood of every organization, interim invoicing is a convincing argument.
Security: Interim invoices can assist with increasing payment security since you don't have to spend your resources and personnel risking that the final invoice is not paid. Having a consistent cash flow from a project might also help you avoid having to track down late and outstanding payments.
Customer support: Making your payment system flexible might be appealing to customers. While the final price point is important, showing that you can meet their demands in terms of how to pay that price will make a transaction much more appealing to them. Being flexible with your invoicing might enhance your company's image in the long run.
Avoid potential payment issues: If a client does not pay their interim invoices, this might indicate that they are having financial difficulties. You may then inquire about this early on, discuss it with the customer, and, if required, halt the project before you incur substantial sums of bad debt.
Working capital: Regular cash inflows will help ensure that you have adequate cash to cover your company's finances and working capital needs.
How To Create An Interim Invoice?
When creating interim invoices, you must go through several steps:
Estimate the cost: Of course, this may vary over time. Circumstances may change during the course of a lengthy project. Simply be sure that any changes to the overall amount are agreed upon in advance in writing. Send a copy of your estimate to your customer and make sure it has been previously agreed upon before beginning the project.
Confirm the timetable: It is critical to start the ((recurring invoicing system)) with a schedule. If you anticipate the project lasting six months, you may elect to issue interim invoices every month.
Sending the interim invoice: Just like a regular invoice, the interim invoice must be sent. If you do not issue separate account statements, you should mention what has been paid, what is still owed, and the expected remaining balances.
Submit a final invoice: When the project is done, create and send the final invoice. This should include a detailed summary of services, the payment deadline, the amount charged, the invoice number, and the payment method (e.g., account details).
Interim Invoice Frequently Asked Questions
- What is the distinction between an interim and a standard invoice?
An intermediate invoice is used when the customer and seller have agreed on a series of payments to cover the overall cost of a project, for example. This is frequently utilized when a project is spread out over a longer length of time to assure cash inflow for the seller while avoiding presenting the buyer with a huge lump sum payment at the conclusion of the project. A standard invoice is a straightforward document used to bill for a service or product.
- What is the difference between an Interim and a Partial Invoice?
A partial invoice indicates that a portion of the project (the portion being charged) has already been completed. The seller invoices a portion of the overall cost with an interim invoice, regardless of whether the project is partially completed.