Creating a reliable invoice may seem critical sometimes for some freelancers or small business owners. Creating an invoice helps to decide the financial stability of your business to some extent. You need a regular cash flow to sustain your business and cover all your expenses. You even need to track your unpaid invoices to avoid the risk of meeting critical costs, which may hamper your business growth and profitability. A one-time invoice works out well with small projects, but what about larger projects? An interim invoice helps with consistent payment throughout the project life that runs for a longer duration
Check out this article if you want to understand how to create interim invoices in detail. Scroll down to know more!
What is an interim invoice?
An interim invoice is also referred to as a progress invoice that helps to break up the payments of larger projects into smaller chunks. This is a kind of accounting method in which the client is billed at a regular increment. The billing is done for a percentage of the total amount for a part of the project that has been completed. This is generally based on an initial estimate and is agreed upon by both buyer and seller. This is sent to the client on a weekly, monthly, or quarterly basis.
How to create an interim invoice for small business
The below-mentioned steps will guide you through how to create interim invoices:
Draft a project estimate:
Draft an estimate before moving forward to create your interim invoices. Calculate how long it will take to finish the project and the related expenses. Also, figure out what will be your equipment list or extra labor that you might need to complete the task. Do mention your hourly rate in your estimate and send the entire report to the client for their approval. Creating a project estimate is vital as that becomes the foundation based on which you will build your interim invoice.
Agree to a schedule:
Once you are ready with the estimate, it’s time to determine the schedule for submitting the interim invoice. Typically for larger and lengthier projects small business owners send one invoice per month and charge their clients as per the estimate. For example, if a project duration is for 6 months and the total cost is $18000, then each invoice would require a $3000 payment from the client.
Submit the invoice based on schedule:
Interim invoice makes payment clearance much easier for lengthy projects that cost high and continue for a longer duration. This helps to manage the project expenses as well. Therefore, you must send your interim invoice on time. Mention the payment deadlines in each invoice so that you are likely to receive your payments on time.
Send the final invoice:
Once you are done with the entire project it’s time that you send your final invoice. The final invoice is much more detailed than the interim invoices that provided accurate data and the total cost of the project. Here are the details that a final invoice should include:
- Final Invoice number
- Itemized list of products or services
- Total working hours if you bill your client on an hourly basis
- Amount due
- Payment due date
- Payment method
When to issue an interim invoice?
To maintain steady cash flow for small businesses, interim invoices are implemented for projects that take several months to be completed. Depending upon the discussion between buyer and seller, interim invoices are sent regularly until the project completion requesting payments in smaller chunks. This ensures easy cost management during the project duration for small business enterprises.
How interim invoices are beneficial for business owners:
Progressive or interim invoices help companies, especially small business owners with steady cash flow. This is why it is mostly preferred by small businesses when they take up projects that run for several months. Below is the detailed list of benefits of an interim invoice.
Cash flow remains unaffected:
Struggling through cash flow problems is one of the major issues that small business owners often go through. Taking up a big project is normal and that might continue for months. But that doesn’t mean one has to wait until the project completion for the full and final payment. To tackle the business expenses along with additional project costs you need constant cash flow. This is when the interim invoice comes into the picture. Raise interim invoices to flow in regular payments for the part of the project already done. This would keep your cash flow unaffected and would alleviate financial stress.
Minimizes the risk of not getting paid:
Suffering loss is a part of business, but frequent losses will put you out of business. Hence, you need to keep a check on your unpaid invoices. The interim invoices enable you to reduce the chances of missing out on payment and safeguard your business from unwanted losses. The biggest benefit is that you can drop the project whenever you feel that the client is unable to pay off your regular payments. Failing to pay initial one or two of the interim invoices. Therefore, you need to move out from the project to avoid further payment issues.
It remains flexible for the client:
Even some clients prefer interim invoices as they do not have to pay the full cost upfront. Providing such an option attracts clients as this method offers flexibility to them to pay the amount in small figures. Clients feel relieved as they can notice the progress of the projects and pay the amount as per the rate of completion.
Therefore, interim invoices are not only valuable for small business owners but also beneficial for the client. This is because creating interim invoices for bigger projects ease up their payment process.
Providing the best quality of work would be your main focus. But keeping an eye on payment, invoice and expenses may eat up a lot of your productive hours. To get rid of such time-consuming invoicing processes, create and send interim invoices to ease up your business transaction. This helps you to get your dues on time and keeps you focused on work as well.