Should You Bill Or Invoice Your Customers

If you run a service-based company, it’s important to consider whether to bill or invoice your customers. While both terms ‘billing’ and ‘invoicing’ are sometimes used interchangeably, they technically mean two different things. This post explains more about the differences between the two and which payment model to choose.

What’s the difference between billing and invoicing?

Billing typically involves recurring payments. It is common for ongoing services like utilities, subscriptions, memberships and insurance policies.

Invoices are usually issued for a one-off payment, or installments with a final deadline. They are issued regarding specific transactions and deliverables. They are commonly used by tradesmen, photographers, manufacturers and entertainers - often issued after service is complete, but in some cases before (as with entertainers like DJs).

Bills typically have to be paid on the date they are issued and the payment may be automated to come out of a customer’s account. A bill document serves more as a receipt.

Invoices usually don’t have to be paid there and then. Customers have a few days to a few weeks before they have to pay the full balance or the first installment. Invoices are therefore issued as a way of requesting a payment rather than serving as a receipt.

When to bill your customers

If you are providing an ongoing service and you want to earn money as you are delivering that service, it may make more sense to bill customers.

Billing can provide a more steady income, but does require you to keep delivering a service.

For example, if you’re a marketing company, a subscription model could allow you to bill the same customers each month - however this will require you to promote them on an ongoing basis and you will need to keep getting results so that they feel it is worth the monthly fee.

Billing needs to be automated using software. Running a credit check could be worthwhile before taking on customers that you plan to bill, so as to avoid regular missed payments. Getting customers to set up a direct debit can also ensure that payments automatically come out of their account, rather than them having to pay each bill manually.

When to invoice your customers

Invoicing is a better option if you want to work on different projects rather than providing ongoing services.

It does involve constantly marketing to attract new customers. You also need to be prepared for delayed payments rather than getting paid as you’re doing the job.

Going back to the example of a marketing company, invoices may be a good option if you want to work on limited period campaigns or if you want to carry out specific marketing tasks for customers with clear goals like building a website or writing a blog post.

Invoices can be semi-automated, but often require some manual input. This article explains how to send an invoice.

Bill or invoice?

A billing payment model is a better choice if you're happy to provide an ongoing service and want to receive a steady income.

An invoice payment model is a better choice if you want a greater variety of projects to work on and are willing to market more heavily to keep attracting new clients.

It is possible to consider both models at the same time, taking on some customers on an ongoing basis and billing them, while taking on one-off projects for other customers and invoicing them.