1-888-486-1290 [email protected]

How Does Invoice Payment Work?

You are here:
< All Topics

While running a business, you need to collect payments from your customers for providing products and services. An invoice is a way to bill your customers for their purchases. You may either allow them to pay the purchase amount later or request payment when the customer receives the goods and services.

Different types of businesses can be paid in a variety of time frames. Online stores and Brick-a-mortar stores want their customers to pay at the time of receiving goods and services. Service-based businesses or wholesalers may charge by invoice- meaning customers receive goods and services before being billed and pay on a due date specified on the invoice.

You need to create a bill for customers to charge them by invoice. You may use an online accounting software program to help you generate invoice templates. When you make a sale, you need to input sales information into the software to generate an invoice.

Here are a few details to include in your invoice:

  • Your Company logo
  • Contact information
  • Invoice number
  • Date of Purchase
  • Sales tax
  • Payment due date
  • Information about late fees
  • Amount and type of product or service
  • Total due

After the payment is made, be sure to update your information so that the record of payment can be kept.

Suggested Reads – What Small Businesses Should Do in Preparedness for COVID-19?

When should an invoice be paid?

When you charge by invoice, you can determine when you want your customer to pay. As a way to attract customers, some businesses allow their customers to pay at a later date by issuing credit terms without any interest charged on it unless they pay it on these specified dates. Businesses must mitigate risk by checking credit reports before extending terms to make sure their customer doesn’t neglect payment.

After terms are established, payment due dates can be within Net 15, Net 30 or Net 60 days.

As a payment incentive, businesses might offer discounts to their customers who pay earlier or may charge late fees to those who pay late.

What Does it mean to process an invoice?

The process of handling incoming invoices from arrival to post is known as invoice processing,

Generally there two types of invoices:

  • Invoices associated with a request or purchase order
  • Invoices that do not have an associated request or purchase order

Most of the companies have a clear process for processing incoming invoices for both the types of invoices. The department that handles these invoices are called the “Accounts Payable

The process of paying a supplier invoice begins when the invoice arrives by fax, mail or email. Once the invoices arrive, the accounts payable department will check whether it’s an invoice and then categorise it in the types of invoice. Next, the invoice is forwarded to the person responsible for that particular invoice. This person is usually the one who has placed the order and he must verify if the amount stated on the invoice is correct. If the invoice is right and the amount stated on it is correct, then the person will sign on it.

Once the invoice is approved and no variances have been indicated, the invoice will be recorded in the accounting system.  Accounting software is designed to automate this process from arrival to post.

Tags:
Previous Do you send an invoice before or after Payment? Invoice Timing Explained
Next Invoice Payment Methods For Small Business: How to Get Paid Faster
Table of Contents