A Guide to Invoice Management for Business

Ciara Byrne

Photo byScott Graham on Unsplash

Regardless of the size of your company or the industry you operate in, you are required to ensure compliant and professional accounting for your business. You can do this internally or through external accounting agencies and partners. By law, in every country in the world, businesses are required to have dedicated accounting professionals, and these regulations typically extend to the self-employed as well as freelancers and digital nomads.

Depending on the size of your business, your industry, your invoicing and sales volumes, and other factors, you may need as few as one accountant or as many as a whole team of professionals. All of that notwithstanding, you always need a good invoice management system for the purposes of automation, accountability and record keeping, compliance, and more.

At the center of all of this is a complex process called invoice management, which is essential for everything from cash flow management to accounting compliance and long-term business planning.

Let’s take a closer look at invoice management and how to do it right.

  1. What is invoice management, and why does it matter?

Invoice management, also known as invoice processing, is the method companies and accounting firms use to track invoices from arrival to payment. While the old definition used to cover only the basics like invoice sending and arrivals, modern invoice management and invoice management systems encompass an array of crucial processes that businesses use for short, mid, and long-term financial planning and forecasting.

While it might look simple and straightforward at first sight, invoice management goes far beyond receiving and paying invoices. This process not only aims to minimize the risk of human error, it also aims to minimize financial waste, maximize the productivity of your accounting experts, and ensure compliance across the board.

It’s also important to note that invoice processing can cause a lot of back and forth between companies, suppliers, and customers, which is it’s important to:

  • Implement a better invoice management strategy
  • Focus on process automation
  • Leverage penalties and rewards
  • Utilize data analytics for process optimization
  • Leverage the invoice management system for better cash flow forecasting

Without a doubt and as you will learn through these best practices, invoice processing is all about maximizing your company’s potential to obtain and leverage the cash flow it needs to operate nominally.

  1. Invoice management for different business types

Different types of businesses in different industries demand a different approach to cash flow management and forecasting, as well as accounting and invoice management. Whether you want to set up a limited company or if you’re a freelancer or solopreneur, It’s important to remember that B2B and B2C companies will invoice their customers differently. But, B2B businesses, in particular, can have a difficult time gathering the payments on their invoices.

In the Ecommerce realm, buying stock from suppliers entails a detailed invoicing structure to ensure product availability for the end customer, but one that also ensures that the company is able to pay the supplier until the sales of the products start generating cash flow. In SaaS, on the other hand, in order to manage SaaS spending effectively and generate cash flow on software solutions, businesses need to rely on recurring invoicing structures and subscriptions.

The key here is to identify the right invoicing methodologies and cash flow management tactics to ensure operational efficiency for your business type. With that in mind, consider:

  • Using an invoice management system that’s purpose-built for your business type
  • Hiring or working with accountants that specialize in your industry or broader sector
  • Leveraging invoice management best practices (continue reading) to maximize invoicing potential and ensure a steady cash flow

Before we move on, however, always remember that you have the option to go for debt financing (for paying suppliers) or invoice financing to get your outstanding invoices paid for cash flow purposes.

  1. The importance of a user-friendly invoice management system

An invoice management system is a comprehensive tool company accounting firms use to track, store, analyze, pay, and retrieve invoices. That is the short and basic explanation and a list of processes and features that even the rudimentary invoice processing systems need to have to ensure compliance and efficient invoice handling and management.

On the other hand, we have more comprehensive invoice management systems that have numerous other features and perks that help businesses boost operational efficiency, expense tracking, and cash flow. Keep in mind that having the best software in the world won’t do all the work for you, so it’s good to at least complete a mini accounting course in order to understand better the different financial processes and how actually to use your tools to their full extent.

A big emphasis nowadays is, however, put on invoice automation and the automation of as many managerial and accounting processes as possible.

This serves the very important purpose of minimizing human error, financial waste, and business liability.

Modern invoice management software will come with many features, including:

  • Premade invoice templates
  • Personalized templates and customer lists
  • Database management and invoice organization for easy retrieval and overview
  • Invoice approvals and editing
  • Invoice categorization based on customer groups
  • Scheduling for outgoing invoices
  • Payment automation
  • Recurring invoices and payments
  • Multi-currency support
  • Dashboard overview with forecasting
  • Comprehensive reports for business analytics and intelligence
  1. Using smart expense tracking for effective and efficient accounting

One of the key elements of efficient and effective invoice management, and accounting, is expense tracking. Expenses are an integral factor in invoice management, as businesses not only send invoices to their customers but are also required to pay invoices from suppliers, tax agencies, insurance companies, contractors, partners, and many more.

And that’s without factoring in business travel and other expenses that need to be properly invoiced, paid, and logged into your accounting and invoice management system. What’s more, you need to monitor all expenses for tax purposes. If you have several revenue streams and money in different assets, you need to monitor those expenses too.

All the money that comes in and out of your business is taxable, and don't forget that crypto is taxable as well, meaning that if you’re expanding into the crypto market, you are subject to government oversight and taxation. This is where smart expense tracking tools come in as the comprehensive integration for your accounting system, as it allows you to seamlessly track and log your business expenses for easy monitoring and overall cash flow management.

Using a feature-rich expense tracking system will allow you to:

  • Use a comprehensive expense form to capture all relevant info
  • Track mileage
  • Track per diem expenses
  • Track split expenses
  • Track billables and non-reimbursable
  • Use an intuitive expense dashboard
  • Use account delegation
  • Use employee reminders
  • Track receiptless expenses
  1. Automation and what to automate in invoice management

Automation is one of those buzzwords that has permeated every industry nowadays. But, when it comes to expense tracking, accounting, and invoice management, it can be a lifesaver for businesses of all sizes.

Similar to SaaS cost management, if you are operating in the cloud, automation is also important for cloud cost management and expense optimization, but also for integrating invoices into your cloud-based operation.

In your invoice management system, you should be able to:

  • Set up and automate recurring payments
  • Set up an automated subscriptions from customers
  • Automate all your accounts payable
  • Automate invoice creation based on customer info
  • Automate invoice scheduling and bulk invoices
  • Automate record-keeping and invoice archiving
  • Automate access management for the system
  • Automate alerts and notifications
  • Automate invoice reporting
  • Automatically reconcile bank transactions for fraud detection and prevention

Whether you have just a couple of clients and a few account payables a month, or if you are building a multi-national, global operation with hundreds of invoices being sent out and received throughout the month, automating these processes will be a game-changer for your company.

That said, keep in mind that this is not automation without oversight. Even the best business payment apps need to have dedicated teams to troubleshoot any problems, provide continuous customer support, and ensure that everything you have set up works as intended.

You also want the team to be proactive and notify you of any irregularities or potential risks.

  1. Building a detailed invoice checklist for your customers

An invoice checklist is simply a detailed data archive for all your customers, clients, partners, anyone else whom you might need to invoice. It’s also a list of everyone who might be invoicing your company, so that you have all the information on record for compliance, fraud prevention, and transparency.

Customer checklists, however, are crucial for two things: process standardization and invoicing automation. If you are invoicing clients abroad or if you are expanding your business internationally, it’s imperative to use customer data integration to get all the right invoicing information and eliminate mistakes.

When you’re expanding into unfamiliar accounting waters and new countries, trying to register a business in the UK or the EU region, for example, you need an invoice management system that can support invoicing in local currencies and according to local laws and regulations. That’s why building customer checklists and using multi-currency and global invoicing systems is important.

The basic information every customer should have for invoicing includes:

  • Customer name
  • Invoice number
  • Invoice date
  • Due date and late fees
  • Invoice template
  • Details about the product or service you're invoicing
  • Routing number
  • Bank number
  1. Invoice timing and why it is important for cash flow management

As you might have already gathered, invoice management is also about maximizing cash availability. To have cash at hand at all times to support your operations, you need to not only optimize and manage your expenses, you also need to schedule, time, and spread out your invoices to cover a specific time period.

You can project cash flow availability on a micro and macro scale, making sure that you have enough cash flowing through your business monthly, quarterly, and annually. To do this effectively, make sure to time your invoices right.

Through demand forecasting and by planning your business expenses months in advance, you can invoice your customers in a way that will generate cash flow when you need it. Some customers will want to pay your invoices monthly, but others will gladly pay a one-off, annual price, or will pay a quarterly fee.

Use that to your advantage, and plan your business expenses and investments around big invoicing periods and cash injections.

  1. Invoice reminders, penalties for late payments, and incentives for early payers

It should go without saying that a good invoice system should allow you to set invoice reminders. These payment reminders should go out automatically to your customers, reminding them to pay their invoices on the due date to avoid penalties.

You can also do this manually, but a good system will allow you to personalize your messaging to retain a positive brand image when you do it. When it comes to penalties, don’t be afraid to use them.

It’s not personal; it’s just business - you need your customers to pay on time, simple as that. However, don’t forget to use positive reinforcement as well.

Perks and rewards for early payers are excellent incentives that will get money into your account faster. Consider giving customers the option to get a small discount for paying ahead of time or provide store credits, loyalty benefits, promotional material, and the like.

  1. Monitoring your invoice management system

Lastly, we need to talk about the importance of monitoring and testing your invoice management system. There are a lot of great tools out there, but you need to make sure that you have invested in the right one for your needs and long-term growth plan.

With that in mind, consider the following during the trial period:

  • Did I get a dedicated team with the tool?
  • Was the team responsive and proactive?
  • Did I receive prompt customer support and service?
  • Was the tool easy to set up and start using?
  • Did the tool generate accurate, data-driven insights?
  • Did the tool have the features and perks I read about today?

Answering these questions will tell you whether or not that system is right for you.

Start tracking your business expenses today

Tracking your business expenses is an essential part of successful accounting and an integral part of invoice management. Using a comprehensive expense tracking system allows you to monitor your business expenses from payroll all the way to purchases and beyond, making it the ideal solution for cash flow management, forecasting, and financial analytics for your business.

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