This factor is about implementing effective financial strategies and practices. If you have ventured into a new business, either small or big if you maintain a proper plan to keep a record of your budget and finances, consider your business to be already on the path of success. An effective financial strategy includes transparency and consistency as its two major components.

One of the key factors in maintaining a transparent accounting process is having a properly managed invoice system. A good invoicing system helps in maintaining budgeting of the business without much of the hard work. It ensures that all product-related data is recorded and makes it possible for the business dealers to have easy access to all the information everywhere and at any time.

What is an Invoice?

For those of you who are not aware of what exactly an invoice is, we have got you covered. An invoice is essentially a document consisting of the details of the purchase made by a customer and its terms. The details about the purchase include everything from the product name to how much a buyer has to pay for it.

The invoice takes two perspectives depending upon who is viewing it. For the seller, it takes the role of a sales invoice as it tells every single detail regarding the sale of the good or service to the seller. For a buyer, an invoice becomes a purchase invoice as it gives information about how much the product costs.

Typically an invoices document is sent to the buyer along with the product in the form of paper but nowadays it has also acquired a form of electronic presence. E-invoice is composed in different electronic formats and is instantly sent online, eliminating the need to get the invoices printed on papers, a process that takes a considerable amount of time and thus results in delayed processing. You can further digitize this process by using a powerful AP automation solution like GetYooz. It will automatically analyze all the E-invoices and extract the pertinent information, after which workflows will automate the payment process. This way you don’t have to touch anything.

 What does an invoice include?

Typically, an invoice is made of multiple elements that play a key role in the overall budget management of a business. The first basic thing an invoice includes is a date on which it is created. The date is maybe one of the most essential features as it tells exactly when the payment became due on the customer. And, in the case of a time limit based on certain payment terms, it helps both the buyer and seller to track the time limit of the payment.

The second thing an invoice includes is a name and address. In the case of a paper-based invoice, a physical address is required, whereas there is no need for a physical address in the electronic invoice, in such case an email address is enough.

The third and the most important feature of the invoice is the details of the product or service that has been purchased. The description of the purchased item usually includes clear and specific information so that there would not be any confusion later when the buyer receives the product. Then there comes the clear mention of the quantity of the product that a buyer has chosen and price per unit.

The invoice also includes payment details that tell the payment method, either paid through card or cash on delivery, late payment penalties, and discount on early payment. Then there is a super important part of the entire invoicing system, the total amount that has been charged and due balance, which shows zero in the case of making an online payment.

The other essentials that have to appear on an invoice are details about the seller, such as the name of the business and contact details. There is also a unique invoice number that is assigned to the seller for the reference.

What are different types of an invoice that you can use for your business?

Depending upon the situation, there are different types of invoices that are used in small businesses. Let’s dig deeper and get to know what the basic invoice types are so you know exactly what to include in your business’s invoicing system to make your accounting budgeting more smooth and easy.

Pro forma Invoice

It is a type of invoice that is typically used as a preliminary invoice, having all the necessary details about the product or service that are usually required in shipment. The details are ordinarily about the weight and transportation charges. This invoice acts as a draft invoice in which it lets the customer know what their desired product will be and what will it cost.

This invoice does not signal a final deal nor does it bind a customer in a legal contract of purchasing with the buyer, instead it simply makes the customer aware of the product. It is sent to the customer before the product is delivered.

Interim Invoice

You can think of it as an invoice that is issued whenever you received a payment in the form of installments for a bigger amount. It basically splits the total amount of a big project that may go on for several months, and demands installments from your clients each month instead of demanding the full amount on completion of the project.

This type of invoice keeps steady cash flow and makes sure that you never run out of funds for the project completion.

Final invoice

This is the most common invoice found in almost every business. It is basically a demand for payment when the product is delivered to the customer or the project has been completed. It binds the customer legally to pay you the full amount on time.

If you are looking for a free business invoice template then read the reviews on Digital Lessons in 90 Seconds.

Financing is perhaps one of the most essential aspects to start your business or to achieve its expansion. However, not all financing programs that exist are destined for the same project phase and selecting the wrong one can lead to unpayable debts or capital stagnation.
What stage is your business at? The answer to this question tells you what type of financing your small and medium business (SME) can access to operate. You can also use the small business loan calculator to evaluate the loan criteria.

The traditional life cycle of an SME is divided into four major stages and in each of them the need for capital is different:
⦁ Incubation
⦁ Takeoff
⦁ Developing
⦁ Maturation
However, you can sum up the objective of this capital in two great uses: money to start (initial capital) and money to function (working capital).

Incubation and takeoff

At this stage, you need initial capital. However, at this stage, when the business takes its first steps the financing source options are scarcer. In practice, there are two mainly:

Self-financing

In general, entrepreneurs who are just beginning are recommended to finance the first cycle of the business with their own resources for the most part. It could be through savings, loans from relatives or trusted friends, or after the sale of some good of a value.

⦁ It is the cheapest option of all the alternatives that a venture has. The initial stage is complex, and while you run the risk of losing capital, you still have time and room to recover.
⦁ If the company borrows to start and does not generate enough income to pay its commitments, the financial history of both the owner and the company suffers simultaneously. Also, recovering from a credit debt takes time.

State programs

The Government offers a wide variety of initial capital financing alternatives for ventures. Normally, the state financing lines do not require the return of the money. However, they make such a structure of the business with a long-term plan to meet certain financial and social milestones. This helps the entrepreneur to organize everything from the beginning.

This instrument is perfect for those ideas that are already advanced and have a clear business model. It is ideal to create prototypes. The creation of a prototype helps to better market the product or service you are already providing and to increase sales.

Research the entrepreneurship support programs of government agencies in your city, region. or country. You can also find advice in guilds or associations related to your industry. It usually works in close connection with local governments.

Development and maturation

At this stage, your SME must be 100% operational. So, you need working capital. Entrepreneurs focus on those small big details that arise when the operation is underway. The maturation captures the new customers that assist in paying salaries or investment for business growth. It is the stage that requires getting the money needed to finance operational expenses and future investments.

In general, SMEs need to prove constant sales after 6-12 months of operation. After all, they could access the financing alternatives that work best in this phase, such as:

Private mechanisms

⦁ Retained earnings (income): When the same company is financed through its cashier.
⦁ Increase in non-stock capital (socio-financial income): When withholding dividends agreed in the shareholders’ agreement or partners’ agreement.

Capital risk

This is a resource for more advanced companies. It is a considerable investment where the investor adds directly to the actions of the company. It is also useful for the expansion and growth of the company. In this modality, the risk and the returns that are fruits of the business are shared. It is generally viable for medium-sized companies that are ready to reach the next level.

Investor networks

This type of financing is obtained through networks of contacts, also known as angel investors, who are interested in your business by finding your innovative product or service. They are those people or institutions that come to you when they consider that your business has enormous potential. Generally, this type of investment commits to the actions of your business, so it is an agreement that you must evaluate carefully.

Capital seed

This capital is perfect for those already established businesses that have a certain product or service of great importance for the sector, but only require a boost to cover some need for operability, for example, to carry out market studies, to check the level of feasibility, to execute the business plan, and to launch.

Financing of banking and non-bank financial institutions

You can go for this type of credit or financing plan for expansion or have more money flow. Its functionality is mixed and represents a feasible idea in almost any phase of your business. However, it is not applicable in the beginning. It is important to ensure that your business needs finance. Also, you should consider avoiding unnecessary expenses or you can take accounting homework help from internet

Commercial credits and lines of credit. In Australia, only banks and credit unions are authorized by law to offer these financial products.
Advance accounts receivable through Factoring. Both banking and non-banking companies offer these services.

Leasing

Through this alternative, the SME leases a capital asset to a leasing company, which after a period becomes the property of the company. It is a financing format especially suitable for businesses that seek to expand. Besides, this works for those who do not have enough money to acquire the machinery or infrastructure necessary.

Crowdfunding (social financing) and other online financing networks

They are participatory financing mechanisms in which investors provide funds to project and company proposals, through digital platforms.
At last but not least, as your business consolidates and reaches a state of maturity, you can combine and assign relevance to each of these sources. We had listed above the sources of financing according to your need for funds. The credits are made to measure as a suit, you just have to choose the one that suits you best. Remember that to access financing for which you have a business plan and a clear projection of the profitability of your company. The suitable type of financing capital leverage the success of your business.

Conclusion

The doors to available financing alternatives will open or close to your SME depending on how advanced it is in its life cycle. In the stages of incubation and take off, it is difficult and costly more to access funds. That is why personal savings and public and private financing programs are so useful for the entrepreneur in this phase. Meanwhile, when the SME has already reached some consolidation or maturity, the available alternatives are more. However, business administrators must be very careful when accessing these funds, since not all options work for all SMEs equally.