What Is An Invoice Payment And How Does It Work

What Is An Invoice Payment And How Does It Work?

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Accounting

Key Takeaways

  • When the goods or services that consumers have purchased are delivered, they pay the business as stated on the invoice.
  • Cash or checks, credit or debit cards, bank transfers, wire transfers, internet payments, and automatic bill payments are a few of the popular ways to pay invoices.
  • Using automated software to manage your invoices and checking your invoice templates are two best practices that can help your business prevent payment delays. 

Invoice payment is the way of collecting money from clients by the businesses. However mind-blowing it may seem, along with the online payment technology and invoice automation software advancement, there are still widespread challenges faced by businesses around the globe.

Those problems that include late payment could be eradicated by having an integrated invoice management system.

Whether you are starting a new business or have been in the game for a while, this article will help you learn everything about invoice payment, and we will also show you some quick tips on how to make your invoice payment on time.

What Does an Invoice Payment Mean?

An invoice payment is a transaction where an individual clears the whole amount due for goods or services provided and is a key factor in maintaining proper businesses function. Thus, well performing the process assists to resolve the problems namely the ones like delayed payments that were mentioned earlier. Invoice is a formal document which normally outlines the whole transaction including goods or service descriptions, the amount payable and payment terms. Establishing these elements is vital, both for issuing and payment.

In the recent times, e-invoicing and accounting software has been used more frequently, which can substantially help to streamline the process. Invoice accuracy and timely billing are thus a way to establish and maintain good relationships with customers and vendors, to keep cash flow going, and to be seen as a professional organization.

Knowing how to read an invoice is critical but separating it from a bill and the rest of the financial documents is as well of the utmost importance. Last but not the least we will traverse through the difference between invoices and bills, their similarities notwithstanding, yet the fact that they are different documents.

What Are The Major Differences Between Bills And Invoices?

Bills are payable in cash immediately while invoices have provision for the client to clear some of the money in arrears.

BillsInvoices
Emphasizes the outstanding balanceInclude invoice number and comprehensive details regarding the purchased goods/services, vendors, and additional transactional data.
Urgently seeks prompt settlementProvides credit terms for payment (e.g., within 30 days).

What Should Be Included In An Invoice?

To avoid the unpleasant cases of delay payments or follow up the unpaid invoices, you must meticulously prepare your invoice. Here are key details that must be included to facilitate prompt payment from your customers:

  • Company Identity: Clearly state your company’s name.
  • Business Location: Provide your operational address.
  • Contact Information: Highlight various communication channels available for customers.
  • Product/Service Details: Describe the items or services purchased.
  • Invoice Identification: Assign a unique invoice number for reference.
  • Purchase Date and Payment Terms: Specify when the transaction occurred and outline payment arrangements, including method and agreed-upon date.
  • Payment Breakdown: Include payment components such as due dates.
  • Total Amount Due: Summarize the total payable by the customer.
  • Payment Instructions: Offer guidance on completing the financial transaction.

These are the minimal items that you should include in your invoice. Besides there you may find other details, including when you will be entitled to get a discount for the early payment or not if VAT is applicable due to the agreement made after the purchase.

Invoice Example

Let’s examine a sample invoice designed to streamline the payment process for your customers:

Invoice Sample

Here is the sample invoice with all the components that we listed above and how they are structured. As a rule, you must go through your invoice each time before sending it to your customer in order to avoid any misunderstandings.

6 Most Secure Options for Paying An Invoice

Once the invoice is received, the next action is to settle it before the specified date. The seller will have to specify the method of payment and payment terms in the invoice. Each option of payment features its own setup procedures which could impose extra fees to either party of the transaction. These factors should be considered when deciding on a payment option for your company and before the selection of the payment method.

Below are several typical payment methods you might encounter:

1. Cash Payment

A cash payment request, is a mutual action plan between the payer and the payee. One can get cash either by attending a meeting in a predefined place or by post. Digital payment systems have succeeded in rendering cash as a safe option because of the associated risk of loss or theft.

2. Pay by Check

Moreover, checks usually require a meeting that is scheduled in advance and/or mailing to the recipient.

Given the growth of quicker digital payment channels, this method is also on the decline since it is more time-consuming than the new payment methods. Another check is also exposed to cancellation or forgery risks.

3. Credit/Debit card

It’s much more convenient and safes to pay with a credit card or debit card. Mostly it will be indicated by the seller whether the cards can be used. For example, you can be redirected to a payment page which is protected by a secure gateway that guards your information.

Perhaps the biggest disadvantage of the credit card payment option is the extra cost of credit card fees charged by the card company.

4. Wire Transfer or Bank Deposit

At times, the vendor could even ask for direct bank deposit to an account. The bank account details should be written down on the invoice, if this is the most convenient payment option.

Domestic wire transfer is the most popular payment tool in the national market. There is often a local bank system that assists in money transaction of this type. But, a transaction fee might also be imposed due to currency conversions and international transfer handling costs when doing cross-border payments.

5. Online Payment

Online payment is, as a rule, made possible by third-party providers such as PayPal, Apple Pay, Google Pay, Statrys, Venmo (USA), WeChat Pay (China, Hong Kong) and Payoneer.

Transaction processing of this type of payment is usually subject to fees from third parties.

6. Automatic Bill Payment

Another way to pay an invoice is by setting up an automatic payment.

This kind of payment request causes both the buyer and the seller to concur on the amount owed and the timeframe for the subsequent payment.

The payer can do so by splitting the single monetary transaction into more manageable and controllable chunks for the customer. It is also a good choice for businesses that make their customers come for their recurring orders.

A standing order can be given for automatic bill payment on a regular debit basis or a recurring payment arrangement to pay invoices.

Recurrent payments can be preset at a fixed or a changed amount. A receipt should be sent to the customer for every payment which has been cleared by the system.

What Are Payment Terms?

Terms of payment is a specification of the time period that customers have to comply with and they may vary depending on the vendor. Usually, this thing is about the payment date.

The payment section of an invoice contains the rules to be followed for the remittance of payment for the goods or services provided. It includes elements like the methods of payment, due date, and possible early payment discounts.

What Should You Do If Payment Terms Are Not Followed?

Failure to follow the invoice payment terms may lead to the delay in payments. Below are the factors which could lead to payment delays from the business side as well as the customer side after the invoice has been issued.

Typical reasons for payment delays from the customer’s end include: 

  • Issues with organization or accounting processes
  • Insufficient funds to settle the invoice
  • Misunderstanding on the payment terms

Conversely, businesses issuing invoices may contribute to payment delays due to:

  • Omissions of essential details on the invoice
  • Ambiguity in payment terms and instructions
  • Provision of incorrect information

On the other hand, these other factors like the bank or the technical issues could slow down the process of payment. Even then, it makes sense for the business to ensure that the invoice is not confusing so that client’s payment is not delayed.

5 Things You Can Do To Get Automatic For Payment On Time

Late payment fees or payment delays are never pleasant for anyone else.

If you’re a business owner you may need to make invoice payments to your suppliers as well. Follow our top 5 tips to never experience delays and always pay your bills on time.

1. Review Your Invoices

It’s crucial to promptly review any invoices upon received, paying particular attention to:

  • Due Date: Make sure that the payment is made on time and that the deadline for payment is verified.
  • Payment Terms: Review the terms provided on the invoice to be sure that you understand them.
  • Total Cost: Make sure that the billed amount is right and it reflects the goods and services you bought.

2. Set Reminder For Prompt Notification

If you are overwhelmed by your day-to-day activities and suddenly get a bill, don’t be tempted by just putting it aside to deal with it later. Hence, the possibility of it getting forgotten entirely can occur.

Instead of it, set aside a time for yourself or your team using a reminder. Write a short message to pay the bill quickly right after you’ve checked it out. If the accounting team is there, you can send the invoice to them immediately.

3. Create a Dedicated Schedule for Invoicing Purposes as the Primary One

Set a schedule for carrying out the tasks of opening, reviewing, and paying invoices. Such approach can be accompanied by the drawing of the payment schedule if you realize that it is possible that you have a couple of invoices arriving simultaneously.

4. Address Invoicing Issues Right Away

This tip is important for both the invoice sender and payer.

If you are a business that is repeatedly subjected to late payments from your clients, this may be the appropriate time for you to look into reviewing your invoice template. Check if there is any gaps in the fundamental details or if your invoice has a clear structure.

If your business fails to keep up with due dates of payments, you need to determine the underlying reasons. For instance, you could begin by analyzing your invoicing system.

5. Install Software for Automatic Invoicing

A part of automated invoicing software can help your business to be time and cost efficient. This kind of software can help you to make, file, arrange, pay for, save, and so on bills so that you can process and manage your invoices properly. Consider trying Xero today with Fastlane to experience these benefits.

Ensure to use the proper type of invoice

This way you can avoid some of the mistakes that would lead to a late fee or other disruptions by making sure you use the right type of invoice.

The invoice generator by Xero can help you to create invoices professionally and save time from having to create them manually. Contact FastLane and give it a try today!

How FastLane Group Can Help?

FastLane Group provides accounting services including invoice payment management that are one-stop to businesses in Hong Kong. We feature a talented team of professionals who come with years of experience and innovative software that makes your accounting operations easy to handle so that you can concentrate on growing your business. Get the chance to feel it yourself with FastLane Group. Contact us today to have a conversation!

Frequently Answered Questions

An invoice payment refers to a payment made by a customer for goods or services provided by a business.

An invoice doesn’t signify that the service has been paid for. It’s a document sent to request payment from the buyer. After the service is paid for, the customer will receive a receipt.

Depending on the conditions specified by the vendor, an invoice may be paid using cash, a check, or an electronic payment mechanism like a credit or debit card.

A bill that is being paid for should contain

  • Purchase details
  • Entities involved in the transaction
  • Cost of goods or service acquired
  • Terms of payment including mode of payment and deadline