Forgetfulness. Disappointment in a product or service. Financial distress. Customers fail to pay their bills on time — or at all — for a multitude of reasons. The last thing you want is for your business to contribute to the problem due to an inefficient invoicing process. From the timely creation and distribution of invoices to periodic reminder messages, payment processing and accurate record-keeping, a well-managed invoicing process brings in revenue faster, improves cash flow and enhances customer relationships.
Key Takeaways
- Invoices should clearly spell out details and terms.
- Accuracy is paramount for credibility, trusted client relationships and getting paid faster.
- Improved cash flow is an important business benefit.
- An automated software solution speeds up the invoicing process, eliminating many manual, error-prone tasks that can result in delays.
11 Ways to Improve Your Business’s Invoicing Process
The invoicing process falls under the domain of accounts receivable (AR), which represents cash owed to a business for the delivery of its products and services. The AR process begins when a credit sale is made, and it includes invoice generation and delivery, payment collection, dunning and collection for past-due invoices and payment reconciliation. The smoother this process goes, the sooner the business can get paid. Here are 11 ways to expedite turnaround.
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Evaluate your existing invoicing process and collect feedback.
As the saying goes, you don’t know what you don’t know, so it’s important for even the smallest of businesses to take the necessary time to review their existing invoicing process and correct inefficiencies. Be on the lookout for clogs in the workflow; examine key performance indicators (KPIs), such as days sales outstanding, AR aging and invoice error rate; and seek input from employees who handle AR. Each piece of feedback can add insight on how to optimize or improve the invoicing process.
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Consider investing in invoicing software and automation.
There’s no getting around the monotony of manual invoicing. The process is time-consuming, and employee data-entry errors can easily slip through the cracks. But the use of software that, for example, automatically converts sales orders into invoices, issues recurring invoices, sends payment reminders and routes invoices for approvals frees staff to focus on more interesting, higher-level work that adds greater business value and improves employee engagement. Also ripe for automation: three-way matching, which involves cross-checking invoices against their purchase orders and delivery data to ensure that details match.
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Establish clear payment terms.
Clear payment terms should be set forth early in a business relationship to prevent misunderstandings or disputes once an invoice is sent. In addition to delays in payments, revenue leakage and cash flow issues, litigation could ensue. Indeed, 64% of C-level executives said an invoice dispute has led to the threat or initiation of a lawsuit, according to Versapay/Wakefield Research. Payment terms should clarify the following details:
- Fee and invoicing method, such as one invoice at the beginning or end of a project or several based on project milestones.
- Forms of payment and currency accepted.
- Payment terms, such as due within 30 days, or due date.
- Penalties for late or missed payments.
- Early payment discount, if applicable.
The invoice itself should contain all necessary details, including invoice and purchase order numbers, buyer and seller information, date of purchase and contact information.
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Send invoices promptly.
The longer your business takes to send its invoices, the longer it will have to wait to get paid. By sending invoices promptly, details of the engagement remain top of mind for both the business, because it must capture all pertinent information on the invoice, and the customer, who will be expecting the invoice. For clients that are billed regularly, issuing invoices on the same day each month builds consistency and decreases the likelihood of their being overlooked. Sending invoices electronically is another way to accelerate the process.
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Offer multiple payment options.
Providing multiple ways for customers to remit payment can also hasten the invoicing process. Examples include offering an online payment portal that accepts electronic funds transfers and credit cards; use of peer-to-peer payment apps, such as Venmo and Zelle; and acceptance of time-tested checks and credit card payments by mail or phoned in. For clients with recurring bills, an autopay option offers convenience. Some companies even allow a small discount to encourage clients to enroll in autopay, to ensure the timely receipt of payments. A related incentive is offering early-payment discounts, which can also stimulate cash flow.
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Keep lines of communication open and send friendly reminders as the due date approaches.
Proactive invoicing management can be realized through a system of periodic reminder notices sent to customers, so they remember to pay their bills. The frequency and method — email, text, phone, postal service — can be based on customer preferences for outreach; but the more customers you have, the more it makes sense to automate these notifications. Done right, customers will appreciate professionally worded notifications that help them remain in good standing with your business and avoid late fees or dealing with a collection agency. These notifications may even help them capture early-payment discounts.
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Ensure all invoiced items are accurately recorded.
“Ensure” is the operative word here, and for that, automation-powered accounting software makes all the difference. Invoice accuracy builds trust between you and your clients. Errors — even minor finger-slip mistakes in the quantity of items ordered or price per unit — can cause payment delays due to miscalculations and frustrate customers. Invoices must also be accurately recorded in a company’s books to ensure the integrity of its balance statement, leading to a smooth financial close.
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Maintain a well-organized filing system to keep track of all invoices.
It’s easy to imagine disorganized stacks of printed invoices piling up, but accounting software can also become convoluted with files. To prevent this, look for an intuitive, customizable system for saving, filing and, later, finding invoices. Common-sense invoice categorization, a consistent naming convention and the ability to track and search for invoices by different invoice details, including client name, invoice date, invoice number and payment due date, are also essential features. In addition, it’s a good idea to maintain an organized record of client communications for future reference should a billing question escalate or become a repeated concern.
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Ensure that all team members are trained on best practices.
Businesses must continually optimize their processes if they’re to operate at maximum efficiency and, in the case of the invoicing process, maintain a positive cash flow. In addition to having sufficient software training, an AR team must be properly educated about e-billing best practices, such as making sure invoices contain all essential details, invoicing promptly and following up on overdue payments within a specific length of time. Consider documenting a set of policies and role-specific procedures to be followed for different scenarios.
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Use analytics and invoicing software to track key metrics.
How much revenue is flowing into the business? How long, on average, does it take to receive customer payments? How much is the business spending to collect overdue payments? These are just a few important KPIs that leading invoicing software can track and flag for attention. For example, KPIs that signal a slowdown in incoming cash might prompt the business to curtail spending in the coming month or investigate invoice financing or invoice factoring for borrowing against their unpaid invoices.
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Keep updated on and comply with legal and tax requirements.
Companies must comply with all financial regulations in the places where they conduct business. Good accounting software will ensure that that’s the case, leading to invoicing accuracy while eliminating the possibility of potential fines for noncompliance or credibility concerns among clients. Businesses should follow generally accepted accounting principles (or GAAP), if based in the U.S. and International Financial Reporting Standards, if based in other countries.
Simplify and Automate Your Business Invoicing With NetSuite
The last thing businesses want delaying the receipt of customer payments is their own invoicing process. NetSuite Accounts Receivable optimizes this cash flow–dependent task by automating invoice creation, delivery, tracking and collections management. The software also consolidates invoices when billing the same customer, automates approval workflows, enables payment processing and sends reminders to customers when payments are near or past due. By cutting down on manual, error-prone processes, the solution increases invoice accuracy, boosts productivity and helps businesses get paid faster. It also works seamlessly with NetSuite Financial Management to create and update journal entries, post to the general ledger and update important financial statements, including the balance sheet.
A healthy cash flow relies on a well-oiled invoicing process that makes sure customers are billed quickly and accurately, which, in turn, can lead to faster payment. The invoicing process works best when handled by accounting software that automates as many steps as possible, including invoice creation, delivery, tracking and payment collection. Establishing clear payment terms, accepting multiple payment types and training staff on invoicing best practices are other important ways to streamline the invoicing process and promote the timely receipt of revenue.
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Improve Invoicing Process FAQs
How do I streamline the invoicing process?
Efficiency is key when getting invoices out the door. Standardizing the look and feel of invoices makes it easier for employees to generate them, as well as for clients to read them. Moving from a manual to an automated process with financial software speeds the process of invoice creation and delivery, for example, which can lead to faster payment. Accepting multiple forms of payment can also streamline the process.
How do you effectively manage invoices?
Establishing a regular client-billing schedule creates an inherent structure and organization for invoice management. This process can be automated through accounting software, issuing payment reminders and sending overdue notices.
How can I speed up my invoicing process?
The more steps you can automate, the quicker customers will receive their invoices and, theoretically, you’ll be paid. Consider sending all invoices electronically to facilitate the process.
What are the 3 main steps involved in invoice processing?
The first main step is for a business to prepare and send the invoice. The invoice should include an itemized list of what the client is being billed for, contact information, what portion of the project has been completed and payment terms. The second main step is invoice tracking until payment is received. Sending periodic reminder notices can be helpful. The third main step is to reconcile and record payments.