Invoice payment processing, put simply, is how businesses get paid. It’s a cycle of letting clients and business partners know what kinds of payments are due, when they’re due, and receiving them systematically.
Businesses of all sizes need to manage invoices efficiently, cash flows, and data accuracy, power day-to-day operations, forecast the future, and prepare for (and achieve) sustainable growth.
Below, we’ll explain everything you need to know to maximize cash flow management through invoicing. We’ll start by defining terms, then dive deeply into the steps involved, methodologies used, challenges to navigate, best practices to implement, and why invoice automation is the best approach.
What is invoice payment processing?
Invoice payment processing is the art (and science) of getting paid. More specifically, it’s about making sure your business gets paid correctly—the right amount, at the right time, and following the exact terms you agreed to—every time it gets paid.
It’s a systematic approach to translating contractual and other agreed-upon terms into executable processes. This, in turn, leads to clear communication with clients and customers and full, on-time invoice payments to support your operations.
Better B2B payment processing leads to swifter approval on the recipient’s end, streamlining their payment processes. This is a win-win for all parties.
However, the meaning of invoice payment processing has rapidly evolved in the past half-decade. Companies have increasingly sought to transform billing processes by compartmentalizing capabilities, replacing and/or introducing entirely new platforms, and hybridizing existing infrastructure with new digital approaches.
More specifically, the biggest shift in invoice payment processing in recent years has been the rapid adoption of virtual methods, accelerated by the COVID-19 pandemic.
Key steps in invoice payment processing
While many things about invoice payment processing have changed, the basic functionalities and requirements have remained mostly unchanged. No matter what technology and tools are used to do it, the process is still about getting paid.
At a basic level, invoice payment processing has three main steps:
- Generating invoices: Companies need systems and tools to create invoices, purchase orders, and other billing documents to send to customers and clients. Ideally, these are tied to contracts and/or customer relationship management (CRM) software so pertinent details populate automatically.
- Delivering invoices: Businesses must create invoices and send them to their recipients in a timely manner to enable swift, accurate fulfillment. In most advanced systems, invoices can be scheduled to be sent automatically when certain conditions are met (e.g., product delivery or the passage of time).
- Receiving payments: Invoices lead to payments that must be taken in and processed appropriately. Manual or automated review ensures that the amounts paid are accurate, appropriate fees or discounts have been applied, payments are received within the correct timeframe, and no fraud is present.
However, moving beyond fundamentals, it’s also important to integrate invoice data collection, analysis, and reporting throughout all stages of the invoice payment processing lifecycle. Communication with invoice recipients before, during, and after payment ensures that payments are accurate and timely with minimal adjustments.
When choosing an invoice processing system, it’s important to remember all parts of the process. The best systems facilitate all three steps, not just one or two.
Invoice payment methods
The tools and systems used for invoice payment processing largely depend on the infrastructure in your accounting system and those of the businesses that receive your invoices. Generally speaking, the methods fall into two camps: more traditional payment schemes based on paper checks and more modern digital ones.
In the more traditional schemes, invoices may also be physical and delivered via mail (or otherwise) or digital. The important thing is that the payments are made via physical checks (or even cash, sometimes).
In more contemporary methods, invoices are paid via virtual methods such as credit card payments or bank transfers. These methods might also have some physical components, like paper invoices or receipts sent by default or upon request.
For most organizations, shifting to secure online payment methods exclusively or primarily is one of the best ways to begin the process of invoice optimization.
Challenges with invoice payment processing
The most pervasive challenge with invoice payment processing involves errors and other issues with invoices and/or payments. On one level, there is the issue of late payments or invoicing going unfulfilled for extended periods.
This can happen for many reasons, but the primary causes often involve poor communication of terms and expectations between parties. Using digital payment solutions for invoices can make it easier to notify recipients well ahead of due dates and send follow-up reminders to ensure that payments are made on time.
Aside from tardiness, there are issues with the concrete accuracy of payment amounts or other terms, like accepted/preferred payment types or itemizing goods and services exchanged. Invoice payment software can mitigate these risks.
While shifting to electronic invoicing systems can help with visibility and communication, digitized invoicing still has challenges. Greater processing speed and capacity take time to adjust, and clients or customers more accustomed to physical payments should be allowed to adapt gradually (within reason).
Best practices for invoice payment processing
There is no one-size-fits-all model that guarantees efficient invoicing methods at every company. Every business’s needs are unique, and improving invoicing should start with a detailed inventory of your infrastructure and challenges.
With that said, all companies can apply certain tips and tricks.
Fully optimizing invoice payment processing for small businesses and enterprises alike boils down to implementing best practices, including but not limited to:
- Setting clear terms and due dates and confirming clients’ understanding.
- Sending reminders (ideally automated) well in advance of invoice due dates.
- Leveraging digital infrastructure and accepting diverse payment types.
- Building security, privacy, and fraud prevention measures into invoices.
- Reviewing processes with routine audits and incorporating clients’ feedback.
- Leveraging the best available invoice automation software (see below)
Per one leading analyst, the post-2020 boom of software intervention has led to an identity crisis for payment processing. Thriving in the future of payments will increasingly mean taking ownership of payment technology innovations. And many of the biggest payment processing software benefits come from automation.
Benefits of automated invoice processing
Although automation is not strictly synonymous with technological innovation, many of the most impactful invoicing and billing solutions use it. By eliminating manual data entry, businesses can supercharge invoice generation and payment processing speed and accuracy while minimizing errors and other risk factors.
The biggest invoice automation benefits when using optimal software are:
- Improved cash flow: Generating and sending out invoices automatically leads to improving invoice payment times. Faster pay cycles mean greater capital availability for day-to-day operations and financial planning.
- Enhanced accuracy: Reducing or eliminating manual data entry and oversight means fewer (or no) manual errors. In addition, any inaccuracies that make it through automated filters will be easier to find, automatically or by human managers, reducing administrative burdens.
- Customer satisfaction: Far from shifting the burden to your clients and customers, automation also benefits them. It makes it easier for them to pay their bills on time, avoiding late or early fees for discounts.
- Cost savings: Smoother, more efficient, and more accurate invoice payment processing reduces overall expenses by eliminating resource needs, making costly disputes and disagreements less likely to happen and easier to manage, and streamlining your pay cycles by making more funds available sooner.
The best way to get the most out of your invoice payment processing is to leverage the best invoice automation software available: the WisePay invoicing platform.
Automate your invoice payment processing today
Ultimately, invoice payment processing is about getting paid in full and on time as reliably as possible. Optimizing invoicing results in more invoices being paid when they should, which makes more cash available sooner.
This, in turn, makes it easier to operate daily and plan for and execute rapid expansion.
WisePay helps businesses optimize their invoice payment processing with powerful automation. Generate, send, collect on, analyze, and supercharge your invoices to maximize cash flow and customer satisfaction, paving the way for sustained growth.
Learn more about automating the processing of your invoice payments with WisePay.
