Every business has a line of vendors they purchase their products and services from. And when there’s a purchase, there’s always an invoice corresponding to it.
In order to precisely organize these different types of vendor invoices, and never miss a payment date, your business needs a well-run invoice payment system put in place.
In this guide, we will dive into how to make these invoice payments, in a timely and accurate manner:
- What Is an Invoice Payment?
- How to Make Invoice Payments on Time [Step-by-Step Guide]
- Invoice Payments FAQ
What Is an Invoice Payment?
Invoice payments are payments made by a business for the products and services they purchase from vendors. A vendor is a general term describing suppliers.
Now, it’s really important to have a consistent payment system in place - invoice timing can be a make it or break it deal for your business.
Not paying invoices on time can damage your business’ supply sources and relationships with vendors. It may also give the idea to other third parties that your business is going through a rough patch, lessening trust, and reputation.
With an organized process, on the other hand, you avoid late payment fees, improve cash flow, and maintain a strong work relationship with suppliers.
What Is Accounts Payable?
When a business receives a vendor invoice, this invoice is sent to accounts payable for processing. Let’s break down what that means.
Accounts payable (AP) is the account inside the General Ledger that displays the business’ debts to creditors or vendors. So, when a supplier sends an invoice, it immediately gets recorded in the accounts payable account.
To record AP, you make two actions: credit accounts payable, and debit the expense account. Then, once money gets paid, cash is credited while accounts payable debited.
Here’s a practical example to understand the process better.
Assume your business receives a $200 invoice for office supplies. In this case, $200 gets credited on AP, and $200 debited on office supply expense. The entry would look like this:
Now, once the invoice is paid off, the following entry is made:
Learn more about making journal entries for double-entry bookkeeping with our full guide.
How to Make Invoice Payments on Time [Step-by-Step Guide]
1. Review Invoice Details
When you receive an invoice, double-check the details in case there are any inconsistencies. The three main elements you should always review are:
- Invoice due date. Make sure you’re right on schedule and don’t miss the deadline.
- List of goods & services. Read over the itemized list of products, and confirm they align with what was actually purchased. If not, contact the vendor to follow up with the mistake.
- Total cost. Again, verify the cost matches what you initially discussed with the seller.
Want to learn more about the main elements that make a professional invoice? Check out our guide on how to make an invoice & get paid faster.
2. Choose Preferred Payment Method
Invoices usually come with different payment options, so you’re free to choose the one that works best for your business. The main types of payment methods are:
- Cash is mostly used for physical goods or small cash-on-delivery purchases. However, it’s not the safest option. It provides no security and can be easily lost or stolen.
- Checks are fairly cheap and secure, but take up a lot of time.
- Online credit card payments are fast, easy-to-process, and payment is immediately confirmed.
- Automatic billing and mobile payments can be done through accounting software. All you have to do is integrate the app with your credit card or business bank account, press Send and the payment goes through automatically.
3. Set Up a Payment Agenda
Part of your accounting system is setting up a payment schedule for invoices. This can be done in two ways.
The first option is manually recording your invoices with an Excel spreadsheet. Write down the vendor’s name, type of expense, invoice date, due date, and the amount owed. Then, organize them by the due date, to prioritize the earliest payables. The same goes for creating an invoice in Word.
If you don’t want to go through the hassle of dealing with spreadsheets, you can use cloud-based accounting software instead. The software automatically creates the accounts payable report along with the other financial statements.
4. Place Reminders
Reminders are necessary so you don’t overlook or lose any invoices and deal with late fees and angry suppliers. Use a digital calendar to get notifications a week before each invoice is due.
Or use cloud-based accounting software to automate the entire payment process and not worry about being late in the first place!
5. Take Advantage of Discounts
Keep track of vendors that offer early payment discounts, and schedule these specific payments ahead of the time limit. Also, make note of seasonal sales to stock up your inventory when products are on discount. Remember, a penny saved is a penny earned!
6. Create Budgets for Your Expenses
If you plan ahead and create a realistic budget for your expenses, you won’t have to worry about not being able to cover your bills in the first place. Keep the following budgeting tips in mind:
- Calculate the total income to determine how much money you’re making, in a weekly, or monthly manner.
- From this data, decide how much you can afford to spend on assets.
- Track your expenses regularly as well, and look for ways to minimize inventory costs.
- Create a separate business bank account. This way you can better track where cash is going, and avoid spending personal money on invoices.
- Use accounting software to simplify expense and income tracking.
For more tips on doing accounting for your small business, check out our small business accounting guide.
7. Open a Business Savings Account
To be in complete control of your invoice payments, alongside your business account, consider creating a savings account as well. Use this account to pay yourself and build a cash reserve in case of an unexpected event. A savings account is also a great strategic plan for possible expansion or growth of your business.
8. Automate Invoice Payments
Stay on top of your invoices by automating the entire billing process with accounting software like Deskera.
Deskera allows you to keep tabs on all of your invoices, through a user-friendly and easily accessible dashboard.
You can use the dashboard to request and send payments in a matter of seconds, as well as get a view of the due date, the amount owed, and whether or not the invoice payment has been received. All in one place!
Don’t want to manually handle regular and recurring payments? Deskera lets you automate accounts payable with a recurring bill feature that you can switch on with just a click.
If you have to have to pay overseas vendors, Deskera easily allows you to do so with its multi currency feature supporting more than 120 currencies available worldwide.
Other features include partial invoice payments, automatic payment reminders, an overview and analysis of expenses, and more.
The best part: Deskera allows you to access these bill features anywhere and everywhere, on mobile, tablet, or desktop.
Still not convinced? Try the software out yourself!
Sign up for our free trial, no credit card required.
Invoice Payments FAQ
Is a Paid Invoice a Receipt?
No, a paid invoice isn’t a receipt. Vendors create a receipt after an invoice gets paid, but they are two separate documents.
An invoice is issued to request payment, while the receipt is used by sellers as a confirmation for receiving payment.
What Should You Put on an Invoice for Payment Terms?
Payment terms are payment details a seller and buyer agree on. They include:
- The time period the buyer has to pay the vendor back, for example: “Payment due in 60 days”.
- Payment options, such as credit cards, electronic fund transfers, etc.
- Any late payment fees.
If you want to learn more about the most commonly used payment terms, head over to our guide on what payment terms are and how they help with cash flow.
How Long Should You Give Someone to Pay an Invoice?
If there isn’t an agreed-upon invoicing period, the most common invoicing payment term is net 30.
Net 30 means a customer must pay an invoice within 30 days.
What is the Difference Between a Bill, Invoice and Receipt?
Vendors issue invoices to request payment for the goods and services they provide. Customers receive the invoice as a bill they have to pay. Then after payment is made, vendors create receipts as proof of payment.
So, invoice is issued by vendor → customer receives it as a bill → payment is made → vendor creates receipt.
We hope you found our invoice payment guide useful!
To recap, here are the key takeaways we’ve covered:
- Invoice payments are the bills paid by a business for the products and services they purchase from sellers.
- When an invoice is received, it gets sent to accounts payable for processing. Accounts payable is the account displaying a business’ debt towards creditors.
- To make timely invoice payments follow these steps:
- Review the invoice details, such as due date, list of goods and services, and total cost for any inconsistencies.
- Choose your preferred method of payment.
- Create a payment agenda, prioritizing the invoices due earliest.
- Place reminders to never miss an invoice payment date.
- Take advantage of early fee payments and seasonal discounts.
- Create a realistic budget for your expenses.
- Open a savings account to build a cash reserve in case of an emergency.
- Stay on top of your invoices with accounting software like Deskera.