Invoicing Best Practices: How to Get Paid Faster

Most, if not all, businesses utilize some form of invoicing. Despite being such an integral part of a business and its revenue generation, optimizing the invoicing process is often overlooked. Business owners with a strong financial acumen know that establishing invoicing best practices and an efficient workflow is a critical component of longstanding success.

According to the Export-Import Bank of the United States (EXIM), over 60% of all invoices are paid late in the U.S. That means that more than half of all invoices a business sends will not be paid on time, thus requiring extra effort to collect payments that are due. Additionally, billing errors often plague suppliers, which reduces their ability to get invoices paid on time.

While businesses may always have to deal with outstanding invoices, there are best practices that can be implemented to create a more seamless invoicing system. Most issues when it comes to billing and invoicing are easily avoidable and remedied with a quick audit of a company’s existing invoice processes:

Invoicing basics

Invoicing best practices starts with a basic understanding of the purpose of these documents within the realm of business. Invoices are legal documents issued to a buyer (the business[es] purchasing goods or services) when a supplier records the sale of a product or services rendered. These documents serve many functions: invoices are used for taxes, accounting and inventory reporting purposes. They also help suppliers keep track of any outstanding debts (accounts receivable) owed to them by a specific buyer.

When a buyer receives an invoice from a supplier, it becomes part of their accounts payable (AP). To issue payment, buyers expect suppliers to prove the debts they are owed and provide clear instructions on how to pay the outstanding balance. As a result, invoices serve two purposes: a record of sale for suppliers and as a notice of debt for buyers.

To issue payment, the buyer must undergo its own internal process for approval and execution. To help streamline these efforts, every invoice a supplier sends should include the following elements:

  • Transaction numbers: Every invoice should be assigned a number for reference purposes that can be cited by both the supplier and the buyer. This might include a unique invoice number, a purchasing order, contract, reference and tracking numbers. The number should be prominently displayed on the invoice for easy reference, and should be used in sequential order.
  • Supplier information: This should include basic contact information such as business name and address, phone number and email for the best point of contact.
  • Buyer information: The same information included on the supplier should also be available on the buyer: company name, billing address and relevant contact information.
  • Invoice dates: Invoices should include several dates for reference: the date of issue, payment due date, delivery date for goods or services rendered and payment terms. How these dates are displayed on an invoice can help process the invoice faster with the buyer. The due date, along with the issue date, should appear in the upper third of the invoice.
  • Product or services descriptions: A detailed description of the products and goods that the invoice covers, as well as the price, should always be included. These details might include quantity, cost per unit, and total cost per item.
  • Invoice amounts: In addition to the product or services descriptions, it’s also helpful to detail information on pending amounts such as early payment discounts, tax information and invoice totals.
  • Payment instructions: To make payment easier for the supplier, include acceptable payment methods and corresponding details. That might include collecting credit card information or providing bank account information for an ACH or wire payment. Offering a few payment options is often preferred by buyers and can make the approval process quicker when payment instructions align with the buyer’s preference for payment. 

Invoice best practices

Once an invoice is created, it should be shared with a buyer and follow a systematic process of engagement ruled by a few key principles.

The first is transparency. When a supplier clearly lists the products or services they’re billing for, it helps the buyer quickly identify why they’re getting charged. Most invoices are read immediately upon receipt and receive one initial review. When pertinent information is not clearly stated (for example, all of the information listed above), the buyer may dispute or reject the invoice, resulting in delayed approval.

The second is consistency. Adjustments to existing invoices should be made using digital software that automates billing efforts and not handwritten. By autopopulating information into an invoice, it will save time and also increase the accuracy and avoid disputes. Accuracy is a critical component of processing invoices on the buyer-side quickly – it removes any unnecessary back-and-forth for clarification and the invoice can instead go through the necessary approval process. It is also helpful to issue invoices in a timely fashion after delivering products or services. Consistently issuing invoices increases the odds of getting paid on time.

The third is investing in the buyer relationship. A successful invoicing system relies on consistent engagement with the buyer. This is essential to the working relationship for several reasons. First, it allows the supplier to learn how the buyer operates and to identify the appropriate contacts for if and when an invoice discrepancy arises. Second, it gives the supplier the opportunity to ask questions, when necessary. And third, such a relationship can increase the chances of an invoice getting paid on time. 

The last principle is to create systems for necessary follow-ups. When invoices begin to age out past their payment date, that should automatically trigger follow-up outreach. The success of this follow us is directly proportionate to the supplier’s relationship with the buyer: It’s more difficult for a buyer to ignore an outstanding invoice when there is an ongoing relationship, as opposed to only reaching out when an invoice is outstanding.

For buyers that are slow to pay, suppliers may need to implement a slightly augmented approach. Contacting such buyers for payments may require an initial notification when the invoice is initially issued. Follow-up should occur a few days later to confirm receipt of the invoice. If payment isn’t received by the due date, follow up two or three days after the payment is due to check in on the status and to prompt the process for payment.

Alternative options

Of course, no invoicing system will be completely foolproof. Businesses will ultimately face suppliers who are delinquent or delay payments. Chasing payments and addressing invoice disputes can be a real strain on your business’s resources – both financially and operationally. When follow-up simply won’t remedy outstanding invoices, businesses can turn to alternative options.

Invoice factoring products, or invoice financing, for example, are programs that allow businesses to essentially sell their outstanding invoices to a financing partner, who then assumes the role of collecting on the outstanding payments. This option can save a business time and prevent potential headaches by offloading the collections process to a third-party with expertise in this back-office operation. While it’s still important to follow best practices when creating and issuing an invoice to your customer, invoice financing can ensure that it’s collected in a timely manner.

The biggest mistake a business can make when it comes to invoicing is not establishing a clear process and standards surrounding invoice creation and collection. Implementing invoicing best practices into your business is a simple operational change that will reap substantial results.

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