When running a business, you’ll have plenty of sections that need your attention. Marketing, customer engagement, administration, accounting, planning, etc. – all these functions must run smoothly to ensure business success. It is easy in that confusion to not keep track of all transactions with suppliers and customers. Fortunately, invoices exist to help ease and streamline transactions.
Nevertheless, the question remains, what is invoice payment and how is it beneficial to your business? This article looks closely at the financial tool, how it works, and how best to apply it in your industry.
What Is an Invoice?
For example, if you bought goods on credit, the invoice will say so, along with the agreed payment options. Invoices carry unique identifier numbers or codes for ease of accountability and tracking.
It is common to find several copies of an invoice, especially physical ones, so all parties to the transaction can have the same reference point. Sending invoices electronically makes it easier to copy and distribute. Either way, an invoice is proof of a given transaction, down to the particulars of each unit of the goods or services supplied and the specific amounts exchanged in return.
How Does Invoice Payment Work?
Part of running a business is chasing payments for goods and services you supply your customers, and an invoice enables you to request payments. You can request payment from a customer immediately when they receive your products and services, or you can follow up on payment later. Depending on the nature of your business and the established relationship with a customer, you can request immediate payment or a late one. For example, if you are a regular product and service provider, you can create a monthly payment schedule. An invoice will contain the details of everything supplied within the month and a payment due date, which the customer will honor each time.
The invoice keeps all payments streamlined and documents each bill to ensure accuracy and prevent losses or confusion. Accounting software helps streamline the process by syncing with different departments to collect real-time product and service distribution data. This way, your accounting department will have an easier time tracking all invoice payments.
Invoice Payment Period
It is worth mentioning the importance of invoice date of payment. You can establish a more profitable arrangement with major customers by allowing them to make larger purchases and pay later. You only need to set reasonable terms and conditions. For example, give them a period no later than six months to have cleared the payments without charging them a late fee. This way, you’ll secure their business and have a confirmed destination for a significant portion of your inventory.
Naturally, you’ll need to assess the customer first before extending such terms. Their credit rapport, for example, is a vital tool to determine whether they will honor their end of the arrangement. You could also motivate the customers by offering early payment discounts and late fees.
Processing an Invoice
To understand how a customer will process an invoice, consider your business as the customer. Your suppliers will also issue you invoices for the raw materials you need. All incoming invoices will be handled by your accounts payable department.
This department will receive the invoice electronically, whether a hard copy or a soft copy and then forward it to the relevant team for invoice approval. For example, the product manufacturing department needs to confirm that all items listed on the invoice were supplied to them. After confirmation and all amendments are processed, the invoice goes into the accounting system for payment disbursement.
Invoice Payment Methods
Depending on your business’s size, you have several payment options. For example, a small business should choose the most efficient, cost-effective, and convenient option. You want to spend only a few company resources processing payments. Here are several good ones:
Cash
Cash is not the most ideal, especially for large invoice payments. Money can be easily lost or stolen, and the translation is not easily traceable. Therefore, reserve cash payment for small purchases in person.
Check
Paying by check is significantly more secure and traceable. However, it is a time-consuming payment method since you have to fill it out and mail it to the supplier, who will confirm receipt. You could use that time for other more pressing business concerns.
Online Payments
You can also make online payments via a credit or debit card. And this option is fast, secure, convenient, and instant. A reputable online payment processing partner will also secure your information and record the transaction for easy reference.
Automatic Bill Payment
This recurring payment option is usually available from regular suppliers. Since your business requires a known quality of products, a supplier can automate all payment requests, which enables an automatic bill payment arrangement. It is convenient and ensures you never skip any payments.
Mobile Payments
A mobile payment has the same speed, security, and convenience as an online payment; only it is faster and more convenient. It takes invoice payments a step further by allowing you to settle them wherever you happen to be or when the supplier visits your premises.
Tips for Efficient Invoice Payment
To stay on top of all invoice payment requests and demands, here are several tips to guide you:
- Pick the suitable payment method that your business and the other party find convenient, cost-effective, and efficient.
- Use invoicing software to help you better manage all invoices.
- Use automatic bill payment as much as possible to ensure you never skip any payments.
- Wherever possible, pay all invoices early to enjoy the early payment discounts.
- Ensure you file each paid invoice.
Final Words
Invoices are vital business tools that ensure you are always on top of all payment requests and demands. The invoice-to-pay process ensures your business enjoys a healthy cash flow, has excellent relationships with suppliers and customers, and finds opportunities for making profits. You only need to handle the process well. This article shares tips to help you along.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.