An invoice payment refers to the money you receive from a client after making a formal request with an invoice. The invoice itself details the amount to be paid, when it will be paid, by which methods, and other terms impacting the transaction. For example, your invoices might specify a preferred payment method (e.g., cash) or timeframe, incentivized with a discount.
Timely invoice payments directly impact cash flow; overall invoicing processes can make or break client relationships. Late payments or poor communication can hurt otherwise mutually beneficial business relationships, while efficient invoicing and consistent on-time (or early) payments make a business partner extremely valuable.
Below, we’ll explain everything you need to know about managing invoice processing effectively, including how automation is a win-win for all parties.
Invoice payments explained
Invoice payments are made against invoices that businesses send to each other. In B2B relationships, paying for goods and services after a short delay rather than immediately upon receipt is common.
Business invoicing is a form of short-term credit. It allows companies to manage their funds more effectively by strategically scheduling their payments.
A common payment term in contemporary invoicing is net 30/60/90, allowing an invoice to be paid 30, 60, or 90 days after receipt. Net 30 is the most common, but longer timeframes exist in certain cases.
In addition, these terms are often paired with discounts for payment before the “net” date. For example, a widely used payment term is “5% 10 net 30,” which means that the client has 30 days to pay, and a 5% discount will be applied to the total amount if it’s paid within 10 days.
The invoicing portion of accounts receivable includes three basic steps:
- Generating an invoice for goods/services delivered
- Sending invoices to clients and confirming receipt
- Collecting payments and making adjustments, if needed
One major benefit of invoice automation is that it minimizes human data entry and the possibility of human error across all process stages. Ultimately, it allows you to create, send, and collect your invoices more accurately, efficiently, and cost-effectively.
Types of invoices
Invoices vary in appearance from company to company, but they generally come in a few standardized formats. The most traditional of these are paper-based invoices sent via mail or delivered to a business.
Physical invoicing needs to account for delays in travel time and typically involves scanning or other means of transferring the physical document into digital interfaces for record-keeping.
Electronic invoices can also be as simple as their standard paper counterparts but in PDF (or other widely accessible) format. On the other hand, digital invoices can be dynamic, with options for signing, commenting, and other functions on the part of the recipient before or after the bill is paid.
When using invoice automation software, you can generate any invoice automatically and send it out at a pre-determined date and time.
Invoice payment methods
As with proper invoices, payments made against invoices can be made in several different formats. Traditional paper payment methods, such as cash or checks, are available.
These methods are most commonly used in conjunction with traditional paper invoicing. They have many of the same benefits and drawbacks. Even if invoicing is done via physical forms, it may benefit all parties to process payments electronically.
There are also online invoice payment methods, such as debit or credit card payments and bank transfers from linked bank accounts. These methods tend to be much easier to track and process. As such, you should consider incentivizing their use with discounts or other preferential invoice terms (e.g., longer pay cycles for ACH).
Ultimately, accepting various physical and digital payments is a best practice.
How to create an effective invoice
Invoices should accurately and completely reflect the goods and services provided. The best way to ensure accuracy is to generate them proactively, tracking sales and creating invoice items before the document is sent to a client. Then, when it comes time to send an invoice, it’s a simple matter of reviewing it.
The minimum information to include on your invoices includes:
- Clear identification as an invoice, including a unique invoice number
- Business information for both parties involved in the transaction
- The date on which the invoice was issued to the recipient
- An itemized list of goods and services rendered, with individual costs
- The subtotal (before taxes and other adjustments are applied)
- The total amount due (after taxes and adjustments)
- The due date and invoice payment terms (i.e., incentives for early pay)
Businesses may provide additional components, such as detailed descriptions of each item charged for or courtesies (i.e., a “thank you”).
Digital invoices can also include easily navigable links to a preferred (or required) payment gateway. What’s the benefit of offering digital payment processing systems? It’s easier for clients to complete the payment process (and, therefore, makes it more likely that you’ll be paid on time).
How to manage invoice payments
Transparency and clear communication are the most important factors when managing invoicing effectively. If you want payments to be made both accurately and on time, you should take precautions to avoid miscommunication.
To start, clearly establish terms and expectations using simple language. Then, formally confirm clients’ understanding in writing.
You should also be wary of tax implications, which add another layer of complexity.
For example, New York State’s taxable receipts laws are intricate regarding which items are taxed, how, and when. Taxes generally apply unilaterally to every taxable item on the invoice, and non-taxable items need to be explicitly marked as such.
However, tax may apply across items that would be non-taxable normally if they’re bundled together with taxable items such that they can’t be purchased separately. Concerning when taxes are generally calculated after discounts or other price modifications are applied—with exceptions for manufacturer coupons.
To address these and other complexities, track and monitor invoices from the moment they’re sent. Reach out proactively to ensure payment arrives when expected and offer options to delay or accommodate clients.
Challenges with invoice payments
Most issues with invoice payments involve timing and communication. In many cases, businesses may find that they aren’t getting paid on time, even if they leverage delays like net 30 and incentives for early payment.
In terms of communication, clients may have issues with processing fees and how they are accounted for in billing and invoicing, regardless of whether they agreed to them.
Late payments have increased: businesses reported waiting 80 or more days to receive payments 20% more in 2023 and 2024 than in previous years. This statistic is especially impactful for small businesses, who depend on their invoices' revenue to ‘keep the lights on’ and prepare for sustained growth.
Another common challenge is the potential for inaccuracies to delay payments or force adjustments after payments are processed. These instances can cause friction for both the buyer and the seller. Automating data entry and implementing granular review before sending invoices can alleviate these concerns for all parties.
Overall, automated payments help mitigate all common invoicing challenges.
Benefits of invoice automation software
Automating your invoicing is one of the best ways to improve generation, delivery, and collection. It addresses common challenges and provides standalone benefits for your business and clients.
The biggest invoice automation benefits you can expect are:
- Improved cash flow management: Faster payments result in more funds being available for more of the time. This makes managing expenses, such as payroll and your accounts payable, much easier. It also paves the way for sustainable growth with better current and future revenue projections.
- Better customer relationships: Chasing after customers and clients is painful for all parties involved. Minimizing the extent to which you need to follow up for payments helps maintain and grow relationships by making more of your conversations revolve around the value you provide.
These benefits are especially evident when using a powerful platform like WisePay.
Automate your invoice payment process
Efficient invoice management is critical to business success. It ensures that payments arrive on time while maintaining relationships with clients, vendors, and others. Automation is the best way to optimize the process for all parties, minimizing risks related to human error while maximizing cash flow.
WisePay facilitates better invoicing with flexible payment processing options, automatic invoice generation and delivery, and robust payment tracking and analytics capabilities.
Learn more about automating your invoice payment process with WisePay.
