Invoice management, also known as invoice processing, is how companies track and pay supplier invoices. Keeping it simple, the process involves:
- Receiving an invoice from a third party.
- Validating it as legitimate.
- Paying the supplier.
- Entering the payment in company records.
While these may not seem overly complicated, the potential for human errors exist.
Innovative companies look for ways to cut out time-consuming things like manual data entry, which can lead to potential errors and is always time-consuming, and Double-handling and excess communication. Sending invoices through email can be labor intensive. Invoice automation is the key here. Instead of sending a PDF around the company for validation, the point-of-contact can simply input the data into a platform or software solution the moment they receive it.
For a small company, cash flow is one of your most essential concerns. Small companies generally do not have large cash reserves to depend on if customer payments are slow, so managing accounts receivable is critical to your business’s financial health and growth potential.
The Invoice Management Process
If you’re sending or receiving invoices, it’s essential to understand what happens when an invoice gets created and when it gets paid. In a nutshell, here’s what the process typically looks like:
- The supplier/contractor sends the invoice, and the relevant department receives it (usually accounts payable, accounting, or finance).
- The team obtains key information from the invoice (like payment details, the total cost, and the products/services they’re being charged for).
- Then, they begin verifying and validating the invoice information, including obtaining approval from other relevant teams who may have contracted the service or product.
- Finally, the Accounts Payable team approves the invoice, and payment is released.
- Eventually, the invoice is archived if it needs to be referenced later on.
Why is Invoicing essential?
Invoicing is at the center of your accounts receivable process. If your invoicing process is up-to-date, comprehensive, and accurate, you have a better chance of managing your cash flow well.
- Automate Billing Process for Speed and Accuracy
Billing automation is not just for bigger businesses. The truth is small businesses have lots to gain from automation. Paper invoices are a mess to manage as they are time-consuming to produce. It is tough to protect them as they can get lost at your customer’s end or on your end. It’s challenging for your staff to track when each paper invoice was sent and when, or if, it was paid. Manual processing is highly probable for human error, severely affecting small businesses. Your invoicing software should identify potential errors like duplicate bills or missing payments and notify you.
- Create a Detailed Checklist of Information for Each Invoice
Your billing software should help you to enter all the critical information. This ensures your customer has everything they require to get your payment squared away:
- Customer
- Invoice Number
- Invoice Date
- Payment Terms: how soon you expect the payment to happen; or Due Date: the specific day you expect the payment
- Invoice Template (for a professional appearance)
- Sales Representative (if needed)
- Details about the product/service you’re invoicing
- Set-up Invoice Timing That is Useful to Your Cash Flow
For bigger projects, ask your client or customer to pay you in a series of partial payments (installments) rather than waiting for any payment until the end. You can also plan monthly payments or payments when each stage of a project gets completed.
If you have multiple ongoing projects or orders, set up reasonable intervals, like weekly or monthly, to the bill. Scheduling regular invoicing will set up proper expectations with your customer. When they expect invoices at an appropriate time, they are more likely to respond immediately, potentially shortening your accounts receivable time period.
- Ensure All Payment Terms Are Agreed in Advance
Customers are prone to pay promptly when they know what is required in advance and have agreed to the terms. Several small businesses send their terms with their first invoice, but it is more effective to have the conversation at the start of a project.
- Monitor Your Accounts Receivable Efficiency
Once you have a strong system in place, it’s crucial to monitor it. Ensure you have the best possible system for your business—one that maximizes your cash flow. Part of this is monitoring to ensure you’re sending your invoices regularly or soon after a sale. Then look through other parts of the system. Try providing options for electronic payments and review your terms constantly. Do you need to offer incentives for quick payments, a change of due dates on your invoices, late fees for slow payments? Every day counts when you’re a small business looking to thrive and grow.
What Are The Challenges of Invoice Management?
An invoice management process begins when you receive the supplier invoice. The invoice should then be: identified, categorized, filed, and matched to a purchase order (PO) by the person responsible for the order. After these steps, the invoice is usually transferred to the financial department, and the sum is paid.
To avoid any issues, the three following points should be double-checked:
- Was the person who ordered the product allowed to place the order?
- Did a manager approve the PO?
- Can the purchase order (PO) or invoice be linked to an existing supplier contract?
What Are The Advantages Of An Invoice Management System?
- It allows for online invoice payments: With an invoice management system, companies can directly accept customer payments on open invoices through their web store. Customers can also pay multiple outstanding invoices at the same time.
- It makes things easy: The invoice management system offers more benefits than allowing customers to pay online. Imagine how often your customers need to contact you by calling or emailing to request documents. With this system in place, you can grant customers access to documentation, receipts, past invoices, and attachments — online, 24/7.
- It helps increase cash flow: It can sometimes be challenging to predict what their cash flow will look like throughout the month for small and medium-sized businesses as they need to manage payroll, accounts payable, and other business expenses. The invoice management system helps automate and streamline the entire process to ensure the cash flow stays positive.
