Understanding how to pay invoices efficiently and on-time is key to running a successful business. Prioritizing prompt, accurate invoice payment helps you build and maintain relationships with suppliers, which are vital to your long-term success.
What is an invoice payment, and how can you make sure you pay your invoices on time, every time? Keep reading to learn more.
What is an invoice payment?
An invoice payment refers to funds sent by a customer to a supplier as compensation for the products and services it received. Often, these payments are made according to a predetermined schedule.
It all starts with an invoice: a document that outlines all goods and services provided and the requested amount payable for them. The invoice should also include the date, item quantities, VAT information, and a unique invoice number. When a supplier issues an invoice to a customer, it triggers the payment for the product or service supplied.
A supplier can make or request invoice payments in many ways, but the most popular route today is an e-invoice, or electronic invoice. These include all the same details as a paper invoice and usually offer convenient payment options, like checks, ACH payments, virtual card payments, and more.
The invoice payment process
The end-to-end invoice payment process begins when a customer receives an invoice and ends with reconciliation. Here’s a breakdown of each step in detail:
- Invoice capture: This step occurs when a customer receives an invoice, whether through the mail, fax, email, or another method. An invoice must be entered into an accounts payable system when received, either manually or through automatic capture on invoicing platforms.
- Approval and authorization: Once the invoice is in the system, the proper individuals confirm and approve amounts. This step may require coding for accounts, projects, or cost centers. If your business uses purchase orders, all POs must match. Automated approval processes are preferred to manual ones, as approval requests are digitally routed to the right people, rather than passed from desk to desk for signatures.Payments must also be authorized before they’re released. Typically, the business controller or CFO completes this step. Automated processes can route the payments directly to the appropriate person, who can approve or reject them at the touch of a button.
- Payment execution: Many accounts payable departments render the payment themselves depending on both their own and supplier preferences. Payments can be sent via virtual card, check, ACH payment, or another method. Again, automated processes save time and hassle. There are too many hands involved with manual payment processing—you’re more likely to experience missed or delayed payments due to errors or payments being physically lost in the mail. Automation and electronic payments enable faster invoice payment with fewer errors.
- Analysis: Many accounts payable platforms have special features that aggregate and analyze data in real time. High-quality analytics tools can help AP teams calculate key metrics automatically, enabling data-driven decision making that helps businesses improve efficiency, increase accuracy, and—best of all—save money.
- Reconciliation: Finally, all invoice payments must be reconciled. Using your accounting software, you’ll compare your supplier statements (which detail how much you owe) with your accounts payable ledger (which lists your transactions). For each payment you’ve made, there should be a corresponding “match”—an invoice from the supplier for the same amount.
How to make invoice payments on time
Late invoice payments create hassles for both the customer and the supplier, and they damage otherwise fruitful partnerships. Businesses of every size should take responsibility to pay invoices on time. Here’s how you can pay your suppliers’ invoices promptly:
- Prioritize quick review: Your accounts payable team should check invoices as soon as they’re received. This ensures they aren’t misplaced or forgotten. Pay close attention to due dates and itemized costs, making sure they align with what was promised by the vendor.
- Set payment reminders: Paying invoices late often comes with some hefty fees. Many automated invoicing systems feature built-in payment reminders, so you can make sure you’re paying your invoices on time and avoiding late payment interest charges and fees.
- Choose the right payment method: Suppliers often outline what payments they accept directly on the invoice. Choose the best payment method for your business based on your current circumstances and supplier preferences. For example, in times of low cash flow, paying off invoices with a credit card might be best. Or, if suppliers are regularly invoicing you, recurring payment methods like direct debit might be the most efficient.
- Capitalize on early payment discounts: Some suppliers are willing to provide discounts on the total cost of an invoice if you pay it off early. If you have the funds and capabilities, taking advantage of discounts will help reduce your expenses in the long term.
The most common invoice payment methods
There are several ways to make an invoice payment, depending on what your supplier accepts. As you consider your options, remember there are advantages and disadvantages to each type. In most cases, you should avoid paying by cash or check. Not only are these slow and outdated options, but there’s also no recourse if a cash payment is lost or stolen.
Online credit or debit card payments are faster and more secure, keeping your personal data safe. Direct debit methods are great for recurring payments, and you can authorize your supplier to collect funds directly from your bank account. Finally, bank transfers are another simple, fast, and affordable way to transfer funds. In just a matter of clicks, you can send funds to your supplier and complete the transfer.
Digital banking enables easy invoice payment
Understanding how to complete an invoice payment is one of the foundations of running a business. By staying on track with payments, you’ll maintain good relationships with suppliers, avoid late fees, and unlock efficiencies that can help you improve your profit margins.
NorthOne’s digital banking solutions are ideal for making invoice payments. With NorthOne Invoice Payments, you can make effortless invoice submissions by uploading or forwarding unpaid invoices to NorthOne via email and we’ll take care of the rest.
You’ll save hours a week and hundreds of dollars in bookkeeping fees with precise payments paid on the invoice’s due date. Plus, you can see all of your upcoming and completed invoice payments in one place, making it easy to stay organized and on top of your finances.
