If you’re a small business owner, your income depends on your invoices being paid. Unfortunately, mistakes made during the invoicing process can cause payment to be delayed or even damage your relationship with your customer. To avoid mishaps and ensure you get paid on time, avoiding making these common invoice mistakes.
- Not including basic payment information. If you don’t tell a customer how to pay you, they won’t have any idea. “Make check payable to…” are four magic words that can make all the difference. It’s critical to include what types of payment you accept (such as check, PayPal, credit card) on the invoice with the necessary information such as where to mail a check, your PayPal email address, etc.
- Not keeping records. Record keeping can be difficult, especially for creative types. However, not only does poor record keeping affect your bottom line it can also get you into hot water with the IRS at tax time. Websites such as www.aynax.com make it easy to manage invoices – for free! So there’s no excuse for not keeping track of your invoices.
- Surprising your client. Sometimes things happen and projects end up costing more than your original quote to your customer. Don’t let your invoice be the first time your customer hears about it. That’s a great way to anger and lose that customer. Instead, contact the customer via phone or email so there are no ugly surprises on the invoice.
- Neglecting to follow up. Maybe your customer honestly forget to pay you or misplaced the invoice. Maybe they just don’t want to pay. Either way, following up on unpaid invoices is extremely important. Not doing so implies getting paid just isn’t important to you, and that’s certainly not the impression you want to give. If unpaid invoices are an ongoing problem, you may want to consider posting a late fee policy on your invoices.
- Waiting to send the invoice. If you don’t send the invoice, you won’t get paid. Waiting to send your invoice, much like not following up, tells your customer it doesn’t really matter when you get paid. If you take forever to send your invoice, your customer will probably take forever to pay it.
Many of the above problems can be eliminated by using invoicing software that provides templates, an invoice management system and online payment capabilities. This makes your life a lot easier and helps you get paid on time.
All of these programs require the IRS to perform a detailed analysis of the taxpayers financial situation. In order for this analysis to be completed, self-employed individuals will be required to provide the IRS with a Profit and Loss Statement. A Profit and Loss Statement is simply a document that lists all of the business income and business expenses over a specific period of time.
If the collection investigation is occurring during or shortly after April 15th, the IRS may be able to complete its analysis using the Schedule C from the taxpayers federal tax return. However, if the return is not available, or is outdated, the taxpayer may need to provide a separate Profit and Loss Statement. For some taxpayers, this can be a very challenging task. However, following a few simple rules can greatly assist you in this task.
Be accurate. You are required to provide complete and accurate information to the IRS. Therefore, you must take the time to make certain your Profit and Loss Statement is accurate. One way to do this is to use your monthly bank statements to create your Profit and Loss Statement. If you do not have all of the necessary statements in your records, ask your bank to provide them.
Be complete. Make sure you have accounted for all of your income and expenses on the Profit and Loss Statement. Taxpayers often make the mistake of leaving out basic business expenses. For example, a truck driver may forget to write down their fuel expense. Make certain you check your statement over twice to verify you have not forgotten any expenses.
Only list business expenses. Your Profit and Loss Statement should only list the expenses necessary to operate your business. You should not list your personal household expenses such as your home mortgage payment, personal insurance or none-business transportation expenses. The IRS will review the personal portion of your financial situation separately.
Consider getting professional help. Resolving your IRS collection matter can be extremely complicated and involved. Consider seeking assistance from a tax professional to help you prepare your financial information for submittal to the IRS and to negotiate a resolution of your IRS collection matter.
For your reference. Please find sample profit and loss statements below. One version is a profit and loss statement for rental income. The other version is a profit and loss statement for business income. The profit and loss statements are in PDF format. They are for your reference only. Please use them as guides as you prepare your own profit and loss statement for determining your rental and / or business income.